Instead of paying taxes on your earnings every year, taxes are delayed until you make withdrawals from your FIA. That means you may have more money in your account to potentially grow, through compounding. With compounding, your interest earns interest every year, which can increase your account balance over time. The prime saving years for retirement are typically your peak working years when you likely pay higher income taxes. But once you retire and your income is lower, you could be taxed at a much lower rate. Any tax-deferred earnings you withdraw in retirement would be taxed at that lower rate as well.
The power of tax deferral
10 years
20 years
30 years
$100,000 initial investment
tax-deferral growth total
$432,194
$162,889
$265,330
taxable growth total
87%
67%
76%
$142,429
$202,859
$288,930
This hypothetical chart illustrates how tax deferral would affect a $100,000 initial premium, before any withdrawals or fees, during a 30-year period. The chart assumes an annual interest rate of 5% and a federal income tax rate of 28%. Actual tax rates may vary for different taxpayers and assets from those illustrated (for example, capital gains and qualified dividend income). Actual performance of your investment also will vary. Lower maximum tax rates on capital gains and dividends would make the investment return for the taxable investment more favorable, thereby reducing the difference in performance between the examples shown. Consider your personal investment time horizon and income tax brackets, both current and anticipated, when making an investment decision. This example illustrates tax deferral and does not represent the past or future performance of any product. Actual results will vary.
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