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What are annuities? – CBS News
Saving for retirement is one of the most important money moves you can make. After all, it can be tough to live off of Social Security payments alone. For example, the average Social Security retirement benefit for January 2024 is estimated to be $1,907, according to the Social Security Administration, which may not be enough to cover all your expenses during retirement. And, with questions surrounding the long-term viability of the Social Security system, it makes sense for most people to start saving and investing for retirement as early as possible.
But while it’s imperative to have a solid plan in place for your finances after you stop working, traditional options, like a 401(k) or individual retirement account (IRA), aren’t the only way to ensure financial security during retirement. If you’re approaching retirement age and want to ensure a steady stream of income for your golden years, you may also want to consider an annuity.
What exactly is an annuity, though, and is it a good investment choice for your situation? Below, we’ll take a closer look at how annuities work and what the potential pros and cons are of opting for one during retirement.
Want to learn more about your options? Compare the top annuities available to you now.
What are annuities?
An annuity is essentially a contract between you and an insurance company in which you make an upfront lump sum payment or series of payments to the insurer. In return, the insurer agrees to make periodic payments back to you, either for a specific number of years or over your lifetime.
Annuities are a popular retirement option because they provide a steady source of income after you stop working, whether it’s for a specific period or the rest of your life. And, annuities are also tax-deferred, which allows you to avoid paying income tax as they grow.
Main types of annuities
There are several different types of annuities, but they generally fall into two main categories: deferred annuities and immediate annuities.
Deferred annuities
With a deferred annuity, your initial investment is allowed to grow tax-deferred over time before you begin taking withdrawals as income. This lets you take advantage of compound growth and is helpful if you are still in your working years but want to supplement other retirement accounts.
Deferred annuities generally come in two key forms:
- Fixed annuities: These types of annuities provide predetermined periodic payments based on your premium amount and the going interest rate from the insurer.
- Variable annuities: Variable annuities generally allow you to allocate your premiums across investment portfolios, so your eventual payments can fluctuate based on those investments’ performance.
Immediate annuities
An immediate annuity starts providing income payouts right after you make your initial lump sum investment. This type of annuity can, in turn, be useful if you have a specific lump sum, like the funds from a 401(k) rollover, and need income immediately in retirement.
The payout terms for immediate annuities can vary based on factors like your life expectancy. For example, you’ll receive higher payments with a fixed period certain annuity versus a lifetime annuity.
Find out more about how the right annuity could benefit you during retirement.
Advantages of using an annuity for retirement planning
So why would you want to consider an annuity for retirement planning? Here are a few key advantages:
Guaranteed income stream
With most types of annuities, especially fixed annuities, you are guaranteed to receive a specified income payment amount on a regular schedule. This can provide invaluable peace of mind as you’ll know that you have money coming in to cover basic living expenses during retirement.
Tax-deferred growth
Any earnings on your annuity investment are allowed to grow tax-deferred until you begin taking withdrawals as income in retirement. This gives you a head start over taxable investment accounts.
Potential for lifetime income
If you select a life annuity, you can receive payments for as long as you live, even if you live longer than the average life expectancy. This protects against the risk of outliving your assets.
Disadvantages of using an annuity for retirement
But while annuities can be a smart option to consider, they also come with some drawbacks:
Upfront costs
Annuities typically charge administrative fees, fund management fees for variable annuities and potentially surrender charges if you make early withdrawals. These fees can add up quickly, so it’s important to factor them in when making a decision.
Less liquidity
Once you’ve established an annuity, your money is committed for a set period or until you start taking income.
Lower investment returns
The stability of the guaranteed income stream provided by annuities comes at a cost. When you purchase an annuity, the tradeoff is potentially lower overall investment returns compared to other retirement accounts.
No control over the principal
With a life annuity, in particular, you eventually spend down the entire original investment amount you contributed. At the end of your life, the insurance company keeps what remains.
The bottom line
For many retirees, using a portion of their savings to purchase an annuity and create a guaranteed baseline income can make sense as part of an overall diversified retirement strategy. However, annuities likely shouldn’t be your only retirement income source. A balance of income streams and growth opportunities is ideal. And, as with any major financial decision, it’s crucial to understand all the fine print and terms of an annuity contract. It’s also smart to make sure you’re comfortable with any fee structures, income start dates or other restrictions to ensure an annuity matches your retirement goals and fits well within your broader financial plan.
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Tajikistan nationals with alleged ISIS ties removed in immigration proceedings, U.S. officials say
When federal agents arrested eight Tajikistan nationals with alleged ties to the Islamic State terror group on immigration charges back in June, U.S. officials reasoned that coordinated raids in Los Angeles, New York and Philadelphia would prove the fastest way to disrupt a potential terrorist plot in its earliest stages. Four months later, after being detained in Immigration and Customs Enforcement (ICE) facilities, three of the men have already been returned to Tajikistan and Russia, U.S. officials tell CBS News, following removals by immigration court judges.
Four more Tajik nationals – also held in ICE detention facilities – are awaiting removal flights to Central Asia, and U.S. officials anticipate they’ll be returned in the coming few weeks. Only one of the arrested men still awaits his legal proceeding, following a medical issue, though U.S. officials speaking on the condition of anonymity to discuss the sensitive proceedings indicated that he remains detained and is likely to face a similar outcome.
The men face no additional charges – including terrorism-related offenses – with the decision to immediately arrest and remove them through deportation proceedings, rather than orchestrate a hard-fought terrorism trial in Article III courts, born out of a pressing short-term concern about public safety.
Soon after the eight foreign nationals crossed into the United States, the FBI learned of the potential ties to the Islamic State, CBS News previously reported. The FBI identified early-stage terrorist plotting, triggering their immediate arrests, in part, through a wiretap after the individuals had already been vetted by U.S. Customs and Border Protection, law enforcement sources confirmed to CBS News in June.
Several months later, their removals following immigration proceedings mark a departure from the post-9/11 intelligence-sharing architecture of the U.S. government.
Now facing a more diverse migrant population at the U.S.-Mexico border, a new effort is underway by the Department of Homeland Security, Department of Justice and the Intelligence Community to normalize the direct sharing of classified information – including some marked top-secret – with U.S. immigration judges.
The more routine intelligence sharing with immigration judges is aimed at allowing U.S. immigration courts to more regularly incorporate derogatory information into their decisions. The endeavor has led to the creation of more safes and sensitive compartmented information facilities – also known as SCIFs – to help facilitate the sharing of classified materials. Once considered a last resort for the department, Secretary Alejandro Mayorkas has sought to use immigration tools, in recent months, to mitigate and disrupt threat activity.
The immigration raids, back in June, underscore the spate of terrorism concerns from the U.S. government this year, as national security agencies point to a system now blinking red in the aftermath of the Oct. 7 attacks by Hamas on Israel, with emerging terrorism hot spots in Central Asia.
A joint intelligence bulletin released this month, and obtained by CBS News, warns that foreign terrorist organizations have exploited the attack nearly one year ago and its aftermath to try to recruit radicalized followers, creating media that compares the October 7 and 9/11 attacks and encouraging “lone attackers to use simple tactics like firearms, knives, Molotov cocktails, and vehicle ramming against Western targets in retaliation for deaths in Gaza.”
In May, ICE arrested an Uzbek man in Baltimore with alleged ISIS ties after he had been living inside the U.S. for more than two years, NBC News first reported.
In the past year, Tajik nationals have engaged in foiled terrorism plots in Russia, Iran and Turkey, as well as Europe, with several Tajik men arrested following March’s deadly attack on Crocus City Hall in Moscow that left at least 133 people dead and hundreds more injured.
The attack has been linked to ISIS-K, or the Islamic State Khorasan Province, an off-shoot of ISIS that emerged in 2015, founded by disillusioned members of Pakistani militant groups, including Taliban fighters. In August 2021, during the U.S. military withdrawal from Afghanistan, ISIS-K launched a suicide attack in Kabul, killing 13 U.S. service members and at least 170 Afghan civilians.
In a recent change to ICE policy, the agency now recurrently vets foreign nationals arriving from Tajikistan, Uzbekistan and other Central Asian countries, detaining them while they await removal proceedings or immigration hearings.
Only 0.007% of migrant arrivals are flagged by the FBI’s watchlist, and an even smaller number of those asylum seekers are ultimately removed. But with migrants arriving at the Southwest border from conflict zones in the Eastern Hemisphere, posing potential links to extremist or terrorist groups, the White House is now exploring ways to expedite the removal of asylum seekers viewed as a possible threat to the American public.
“Encounters with migrants from Eastern Hemisphere countries—such as China, India, Russia, and western African countries—in FY 2024 have decreased slightly from about 10 to 9 percent of overall encounters, but remain a higher proportion of encounters than before FY 2023,” according to the Homeland Threat Assessment, a public intelligence document released earlier this month.
A senior homeland security official told reporters in a briefing Wednesday, that the U.S. is engaged in an “ongoing effort to try to make sure that we can use every bit of available information that the U.S. government has classified and unclassified, and make sure that the best possible picture about a person seeking to enter the United States is available to frontline personnel who are encountering that person.”
Approximately 139 individuals flagged by the FBI’s terror watchlist have been encountered at the U.S.‑Mexico border through July of fiscal year 2024. That number decreased from 216 during the same timeframe in 2023. CBP encountered 283 watchlisted individuals at the U.S.-Canada border through July of fiscal year 2024, down from 375 encountered during the same timeframe in 2023.
“I think one of the features of the surge in migration over recent years is that our border personnel are encountering a much more diverse and global population of individuals trying to enter the United States or seeking to enter the United States,” a senior DHS official said. “So, at some point in the past, it might have been primarily a Western Hemisphere phenomenon. Now, our border personnel encounter individuals from around the world, from all parts of the world, to include conflict zones and other areas where individuals may have links or can support ties to extremist or terrorist organizations that we have long-standing concerns about.”
In April, FBI Director Christopher Wray warned that human smuggling operations at the southern border were trafficking in people with possible connections to terror groups.
“Looking back over my career in law enforcement, I’d be hard-pressed to think of a time when so many different threats to our public safety and national security were so elevated all at once, but that is the case as I sit here today,” Wray, told Congress in June, just days before most of the Tajik men were arrested.
The expedited return of three Tajiks to Central Asia required tremendous diplomatic communication, facilitated by the State Department, U.S. officials said.
Returns to Central Asia routinely encounter operational and diplomatic hurdles, though regular channels for removal do exist. According to agency data, in 2023, ICE deported only four migrants to Tajikistan.
Robert Legare and
contributed to this report.
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