Annuities | First State Financial Management

What Is an Annuity?

An annuity is a tax-deferred insurance contract designed to provide income during retirement. You invest a lump sum or make ongoing contributions during the accumulation phase, and receive payments later during the distribution phase—often after you retire.

Your annuity is issued by a life insurance company and may include fees such as:

Mortality and expense charges
Administrative fees
Surrender charges (if you withdraw early)

Why Consider an Annuity?

Tax-deferred growth until you begin withdrawals.

No annual contribution limits—invest as much as you want.

No required distributions at age 72.

Creditor protection in some states.

Probate-free death benefit for your beneficiaries.

Customizable income stream to match your retirement needs.

Choosing the Right Type of Annuity

Your decision depends on two key questions:

When Do You Want Payments to Start?

Immediate Annuity: Begins paying within a year—ideal for retirees.
Deferred Annuity: Payments begin later—great for long-term planners.

How Do You Want Your Money Invested?

Fixed Annuity: Guaranteed interest rate; stable payments.
Variable Annuity: Investment-based; payments vary with market performance.
Indexed Annuity: Returns tied to a market index, with downside protection.

Flexible Payout Options

Payout	Description
Lump Sum	Withdraw all funds at one (taxable in full that year).
Period Certain	Payments over a set number of years; remaining payments go to your beneficiary if you pass early.
Lifetime Income	Guaranteed payments for life - no matter how long you live.
Lifetime + Period Certain	Combines lifetime income with a guaranteed minimum payout period.
Joint & Survivor	Payments continue for the life of you and a spouse or partner.

Things to Keep in Mind:

Annuities aren’t for everyone. Consider these potential drawbacks:

Contributions are made with after-tax dollars.
Early withdrawals may trigger surrender charges and a 10% federal penalty.
Investment gains are taxed as ordinary income.
Once annuitized, payment options are typically locked in
Fees can include management, insurance, and administrative costs.

Shop Smart

Not all annuities are created equal. Rates, fees, and features vary widely.

Be sure to:

Compare costs and returns
Choose a reputable, financially sound issuer
Consult an FSFM Advisor for personalized guidance

Not Sure Where to Start?

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