How Annuities Work for You

If you live in Seattle and you are curious about annuity rates, you are probably ready to go online and study up about deferred annuities, immediate annuities, fixed annuities and variable annuities.  Once you learn about annuities, you will know if an annuity is a good investment for your retirement.

Annuities are basically savings accounts meant to be retirement savings accounts that you get from insurance companies.  Like a CD that you take out with a financial company, you deposit money (pay a premium) and the principle (premium) grows at a higher rate than a typical savings account.  Annuities, unlike CDs, however, are tax deferred.  

When you deposit money into a CD in Seattle, you will be charged a tax at the end of each year on the interest that your CD has earned.  However, because an annuity is an insurance product and not a savings account, the interest that your premium is earning is not really yours during the accumulation period of the annuity so you do not pay taxes on the interest until you begin receiving payout of the annuity.  

You do pay taxes either way with a CD or an annuity, but since you do not pay taxes throughout the accumulation period of an annuity, the interest is earning even more interest.  In a CD, less interest is left over each year after you deduct the taxes you pay from it each year so that much less interest will be accrued.  

With a tax-deferred annuity, you will accumulate more money before you have to pay any taxes so while you are paying taxes on more money, you will realize more profit after taxes.  The higher your tax bracket, the larger your annuity, and the better your annuity rate, the more money you will make from an annuity due to your tax being deferred.

How you receive your payout also affects your tax rate on your annuity earnings.  If you receive a lump sum you may pay a higher tax rate.  If you receive a fixed income for the rest of your life, you may end up paying much less in taxes for your return.  If you choose to receive your payout over a fixed period of time, say equal payments every month for five years or ten years, you will pay a little more in taxes than if you receive lifetime payments.

Annuity rates will have a big effect on the return of your annuity during the payout portion of the annuity.  Living in Seattle after retirement will be expensive so you will want to get annuity rates that will give you the best payout possible during your retirement years. 

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