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Avoid Market Chaos with Annuities

July 18, 2008 – by Richard Band

Can I be honest with you?

There’s no telling exactly how long our current “unsettled times” will last. I’m hoping they’ll pass quickly.

In the midst of this chaos I realize that security looms every bit as important to your financial future as growth does.

In order to ensure that you’re investments are well-protected, I encourage you to take a second look at an old investment tool that, after falling out of favor in the past few years, may be on the verge of a comeback.

I’m talking about annuities.

Whether you invest in fixed annuities or variable annuities, these investment tools can save on taxes, a key benefit if tax rates go up under a new presidency, while providing certain valuable guarantees.

They’re an investment tool that I recommend to my Profitable Investing subscribers, which have helped to keep their portfolios thriving time and time again.

How Do Annuities Work?

On my Profitable Investing website I like to provide a glossary which helps to explain various financing terms that I often use.

It should come as no surprise that annuities are at the top of the list (it does start with an ‘A’ after all).

So what is an annuity?

Well, to quote myself, annuities are, “Financial products sold by insurance companies that are designed to accept and grow funds from an individual and then, upon annuitization, give back a stream of payments to the investor.” These investments can be both fixed and variable annuities depending on what works best for your investments.

Sounds good right?

My favorite part about investing in an annuity comes when…

…interest, dividends and capital gains accumulate tax-free in the account until you begin withdrawals. Because a 10% penalty tax normally applies on withdrawals before age 59-1/2, I recommend that you leave money in a deferred annuity until they reach at least that age.

When you start taking money out, the IRS assumes that the tax-deferred earnings come out first, to be taxed at “ordinary” (wage and salary) income rates. As an added bonus, the original principal you kicked in isn’t taxed.

Two Ways to Profit

There are two basic ways to pull cash out of a deferred annuity.

Regardless of which route you choose you’ll walk away with a pocket full of gains. At the end of the day, you just can’t lose.

1) Most annuities allow you to make withdrawals pretty much whenever, and in whatever amounts, you want, after the surrender charge (imposed by the insurance company) has lapsed. Assuming you’re past the age of 59-1/2, you won’t incur any tax penalty, either.

2) At any age, you can “annuitize,” converting a deferred policy into a stream of monthly payments for life or a period of years.

Bear in mind, though: Once you’ve elected to annuitize, you generally can’t reverse the decision. If the owner should pass away before annuitization has begun, his or her beneficiary receives the proceeds of the count. Your money will never be tied up in limbo, unless so desired. (For example, you may choose to have payments spread out over a number of years.)

An Annuity Pick to Get You Started

I’d like to share with you one of my top two fix-annuities picks: Hartford Life’s CRC Select, which behaves very much like a bank CD. But with no current tax on the interest, you can lock in your return for a stretch of five, six, seven, eight, nine or 10 years.

With Hartford, surrender charges for early redemption start at a stiff 6% the first year, but step down to 2% by the sixth year. In addition, if you bail out before the agreed term is up, Hartford will adjust your principal up or down, depending on whether interest rates have fallen or risen.

That’s a very good deal, if I do say so myself.

Anxious to learn more about other good annuity investment deals? Then why keep yourself in the dark? As a Profitable Investing subscriber, the range from variable to fixed annuities will be just one type of investment that can not only revive your dying portfolio, but help it to thrive! Learn more about investment strategies that are making a comeback, as well as various other annuities that will help you turn your portfolio around, with a RISK-FREE trial to Profitable Investing. Click here for more details on this special offer.