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VOL. 110 | NO. 74 | Monday, April 15, 1996

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04-13 Inv analys Are annuities for you? By MIKE STEIN Special to The Daily News If you would like an investment that grows tax deferred until you decide to withdraw it, consider annuities. An annuity is simply a contract between you and an insurance company in which you deposit a sum of money that accumulates tax-deferred until you decide when you need income. You can choose to receive income when you desire or you can choose to receive regular payments, either for life or for a stated period of time. Annuities may be suitable at any age, from retirees looking for deferred growth or current income to people who are middle-aged and looking forward to future income needs. In either of these scenarios, the annuity allows for the deferral of current taxes. Because the money you earn on your principal is not taxed until you begin collecting payments, your money can grow faster compared with other investments offering current taxable income, thanks to the magic of tax-deferred compounding. At retirement, the annuity value has compounded quicker than a taxable investment offering a potentially greater value from which income could be withdrawn. When income is withdrawn, earnings are subject to ordinary income tax. In addition, if you withdraw earnings from a deferred annuity before age 59 and 1/2, there may be a 10 percent Internal Revenue Service tax penalty on the earnings. Also, most annuities impose a charge for early withdrawals which exceed the annual withdrawal permitted as part of the annuity contract. Therefore, purchasers should have enough liquid investments to ensure they will not need to withdraw funds prematurely from the annuity. People have long used annuities as an ideal supplement to their retirement income from Social Security, company pension plans, IRAs or Keoghs. Annuities are flexible and can be tailored to your needs. Following are some of the options available to you: Most annuities provide for current liquidity needs by allowing usually up to 10 percent of the invested amount to be withdrawn annually with no insurance company charge. (A tax penalty may still apply.) Annuities provide death coverage (guaranteed by the insurance company) that guarantees a minimum return of invested principal (minus any withdrawals) if the owner of the annuity dies during the contract. You may choose to pay the premium in a lump sum (single-premium annuity) or over as many years as you wish (flexible-payment annuity). The advantage of the single-premium is that the initial deposit of $5,000 or more accrues earnings immediately. The flexible-payment annuity allows for investment of smaller amounts. However, you dont accumulate earnings as fast using this approach. You may invest your money either in a fixed rate or a variable annuity. Fixed annuities allow you to lock in a rate of return guaranteed for a specified number of years. A variable annuity allows you to allocate your deposit among professionally managed portfolios called sub-accounts (i.e. stock, bond or money market instruments), thus offering you the potential for a higher return (as well as more risk). Your return varies, depending on the portfolios performance, hence the name variable annuity. There are mortality and expense fees associated with variable annuity sub-accounts. You may choose from a range of payment plans when you decide to receive your annuity income. You may receive it in the form of a lump sum, regular monthly payments or as lifetime income for you and your spouse. If you choose a life or joint life income option, the amount of annuity income will be based on the amount you have contributed, your age, the length of time your money has been compounding and the rate of return on the portfolio. Sound interesting? You may wish to consult your financial advisor to determine whether annuities represent a viable way to reach your investment options. Stein is first vice president of investments for Prudential Securities Inc.
PROPERTY SALES 57 280 1,209
MORTGAGES 55 244 916