Tax Deferral

A comfortable retirement is something we hope for – a time to relax and enjoy life how we’ve envisioned. Once we stop working, having a reliable source of income is essential to maintain the lifestyle we’ve become accustomed to. However, when it comes to actual planning for retirement, some are often faced with a decision between lifestyle plans and wealth accumulation. In fact, it can be surprising how much of your long term investment returns are taxed and how that can make a difference to whether you will meet your financial goals. A deferred annuity may be the solution towards saving for retirement. The money invested can grow tax-deferred, which means the money will not be taxed as ordinary income until you start to withdraw the funds during your retirement.

Rick, 57 and Farrah, 53, along with their daughter Kate, currently reside in New Jersey. They are looking forward to their retirement, as their goal is to relocate to Florida. Their daughter Kate, a recent college graduate, however, plans to stay in New Jersey, since she recently secured the job she has always wanted in New York City. Rick, having always been the breadwinner of the family, is currently still working. Rick has some concerns about retiring. He constantly worries about whether he will have enough income to support their new lifestyle in Florida and if he will still be able to financially provide for any life events that may occur in Kate’s future. Rick reaches out to his Financial Professional, Joe. Rick explains to Joe that although he has a nice portfolio of investments, he realizes that those investments are taxed each year, which hinders some of the growth in his portfolio. During the conversation, Rick inquires if there is any other type of investment that will allow wealth accumulation without taxation. Joe listens carefully to Rick and suggests investing a portion of his portfolio into a tax-deferred annuity. Joe explains that this type of annuity could be the solution Rick is looking for. He informs Rick that he can invest his money as often as he wants into the annuity, as there are no contribution limits, and that the principal and gains within the annuity can grow tax-deferred until he decides to withdraw the funds in retirement. At that point, the money withdrawn will be taxed as ordinary income. The annuity can provide Rick an opportunity to have tax-deferred growth accumulation on his investment, while at the same time allowing him to keep more of what he earns as he approaches retirement. When the time comes for Rick and Farrah to move to Florida, Rick will be able to access the income from the annuity to supplement their lifestyle. Rick appreciates Joe’s insight and proceeds to purchase the annuity. Rick now feels confident that when he retires, he will be able to financially provide for Farrah and Kate as he always has.