When my mom told me she was moving from small-town South Carolina to the Gulf Coast of Florida, images of alligators, Disney World and The Golden Girls danced through my head. While I knew she had worked hard to put me and my brother through college, I was quite surprised to learn her sound financial planning had been able to afford her this incredible move.
My mom is not alone in her move to the Sunshine State; in fact, Florida netted more than 61,000 seniors each year between 2010 and 2013. The state’s population has doubled since 1980; Florida reached a population of 20.7 million by the end of 2016. While the gorgeous beaches, warm weather and Mickey Mouse are quite appealing, one of Florida’s greatest draws is their lack of income tax, which entices pre-retirement folks (like my mom) to make the move.
During my college years, I knew my mom had term life insurance. However, I did not realize she had strategically purchased annuities to help cover her needs during her move to Florida and eventual retirement. The careful planning she had done more than a decade ago would afford her financial freedom, including an incredible home a short drive to the beach!
These days people are living longer; babies born in 1900 typically did not live past 50. Today, men can expect to live until 84.3 and women to 86.6. Which means it’s important for people to plan for a long retirement. How are these octogenarians maintaining financial sanity? One way is to include annuities in their retirement planning.
While there are different types of annuities, there are two primary kinds: immediate and deferred. An immediate annuity, as the name implies, pays out income (almost) immediately. A deferred annuity allows you to accumulate money until you’re ready to retire, then you have the choice to turn it into an income stream. Based on your goals and age, a financial planner can help you to select the best one for you. Those nearing retirement can rely on Immediate Annuities to begin receiving payments for as long as you live, or for a shorter time period you select. Payments start based on the frequency of payments you chose. For example, if you choose monthly payments, they start one month after the premium is paid. Annual payments would start after one year. . Whereas those who have decades before they plan to retire may opt for deferred annuities, which would help them reach long-term goals (like moving to the beach in their golden years).
Even if you are a recent graduate, it is never too early to begin saving for retirement; in fact, it could help you get a sunny beach house too. With the number of people 65 or older across the globe reaching 1,500,000,000 by 2050, we need to encourage our friends and relatives to save like never before. Careful planning during your working years can allow you to pursue a new hobby and travel during your retirement.
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Because they are meant for long-term accumulation, most annuities have surrender charges that are assessed during the early years of the contract if the contract owner surrenders the annuity. In addition, withdrawals prior to age 59 ½ may be subject to a 10% Federal Tax Penalty. All withdrawals made from annuities with pre-tax contributions are taxed as ordinary income. All withdrawals from an annuity purchased with non-qualified monies are taxable as ordinary income only to the extent there is a gain in the policy. This is not a solicitation of any specific annuity contract. This is not a solicitation of any specific annuity contract.
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