What is an Annuity?

Saving for retirement is a daunting task, and for some Americans, it seems impossible. This year, 36 percent of Americans reported that they have not yet begun saving for retirement. This number is even higher among younger demographics, with 43 percent of Millennials stating that they don’t have any retirement savings. The numbers change a bit based on income, but the trend is clear: saving for retirement is a tough task these days, and the majority of people won’t have enough savings to comfortably retire at 60, or even 65.

Fortunately, people have many options that can help them to save for retirement or protect their wealth for future financial security. At the National Catholic Society of Foresters, we offer several different annuity options that you can utilize for your financial planning. Let’s take a closer look at what an annuity is and what we can offer you.

What is an Annuity?

An annuity is a contract that you sign with an insurance company. In exchange for a lump sum payment or a series of payments that you provide, the insurance company will in exchange provide regular disbursements, beginning either immediately or at a set point in the future.

By making one payment now, you can give yourself a steady income stream during retirement, once you’ve stopped bringing in income through your career. These funds are tax-deferred, and cannot be withdrawn without penalty until the age of 59.5, or later.

Though you obtain annuities through life insurance companies, they are not the same thing as life insurance. An easy way to remember the difference is that you purchase life insurance for a payout in the event that you die too soon, whereas you purchase an annuity for a payout while you are still living. Life insurance provides financial benefits to your loved ones, while you can use an annuity’s financial benefits for yourself. Annuities function by transferring risk from the owner (or “annuitant”) to the life insurer, and your initial payments function as the premiums for this risk.

Types of Annuities

Here at NCSF, we offer three types of annuities. Which option is the best for you depends on what your financial needs and limitations are.

  • Non-Qualified Annuity: Non-qualified annuities are funded with after-tax dollars. These annuities are ideal for recently-retired individuals who would like to start receiving income immediately or those who have already contributed the maximum amount to a qualified annuity. There is no limit on the amount of money that can go into a non-qualified annuity, nor is there a limit on the number of non-qualified annuities that you can purchase. Even if you already have a retirement plan through work or an IRA, you can still purchase one. You also are not required to withdraw from the annuity by a certain age; even if you pass away, your spouse has the option to continue to build it.
  • IRA Annuity: A traditional IRA is a type of retirement account through which you can accumulate tax-deferred earnings, only paying taxes when you withdraw them. If you have a retirement plan through your job, your annuity may or may not be tax-deductible depending on your income; if you do not have any other retirement plans, you can deduct your IRA contribution on your income tax return. Traditional IRAs require that you wait until age 59.5 to withdraw from the account (you can withdraw earlier with penalties), and you must start making required minimum withdrawals from your account after you reach age 70.5.
  • Roth Annuity: Unlike traditional IRA annuities, in which you accumulate wealth with pre-tax dollars, Roth IRAs are funded by after-tax dollars, allowing you to accumulate wealth tax-free. This option is ideal for individuals who are anticipating moving to a higher tax bracket in the future, because they will not need to pay income taxes on the money in their annuity once their tax rate has increased.

We hope that this guide has left you with a better understanding of what an annuity is, how it can help you to save for retirement, and what your options are. If you have any further questions, feel free to contact us today. One of our agents would be happy to answer any and all of your questions.

About National Catholic Society of Foresters

At National Catholic Society of Foresters, we pride ourselves on giving back to the communities that we serve by providing quality and comprehensive insurance solutions. Sales from our financial services products help fund member benefits along with social, educational, and volunteer programs designed to respond to community needs. Our portfolio is extensive, ranging from various life insurance policies to IRA’s to support your financial needs no matter what stage of life you’re in. For more information, contact our friendly experts today at (855) 804-7424.