Today, the majority of the burden for retirement income seems to have shifted to the individual. For this reason, you may want to consider adding an annuity to your retirement strategy to establish a guaranteed* fixed income component. An annuity is a contract you purchase from an insurance company. For the premium you pay, you receive certain fixed interest crediting options able to compound, tax deferred, until withdrawn.
When you are ready to receive income distributions, this vehicle offers a variety of guaranteed* payout options. Most annuities have provisions that allow you to withdraw a percentage of the value of the contract each year up to a certain limit. However, withdrawals will reduce the contract value and the value of any protected benefits. Excess withdrawals above the restricted limit typically incur "surrender charges" within the first five to 10 years of the contract. Because they are designed as a long-term retirement income vehicle, annuity withdrawals made before age 59-1/2 are subject to a 10-percent penalty fee, and all withdrawals may be subject to income taxes.
*Annuity guarantees rely on the financial strength and claims-paying ability of the issuing insurance company. Annuities are insurance products that may be subject to fees, surrender charges, and holding periods, which vary by carrier. Annuities are not FDIC insured.