A patient that visits an aesthetic service provider for a filler, will typically return for another injection as the effects of the filler wear off. Assuming the patient is happy with the results, he/she may return for future injections several times a year, increasing the aesthetic physician's annual income stream. Over time, this patient can be counted on to provide a certain amount of revenue each year. Once a strong practice is established, an aesthetic physician can reasonably estimate annual revenue based on recurring visits.
However, once you retire, how will that income stream continue? Social security will probably not be sufficient to meet your needs. Therefore, it is your retirement savings that will provide enough income to allow you to maintain your current lifestyle.
One way to help plan for retirement is by purchasing an annuity contract. An annuity is a contract between an investor and an insurance company, which help investors accumulate assets for retirement on a tax deferred basis. When you purchase an annuity, your investments will grow tax exempt, similar to an IRA account or 401(k) account, until you begin taking distributions.
Annuities can also provide lifetime income and death benefits. Owning the right annuity will allow you to receive funds for the rest of your life, regardless of whether you outlive your initial investment.
Two Types of Annuities that can provide lifetime income are Immediate Annuities and or Variable Annuities with living benefit riders*.
- Immediate annuities are contracts where the investor begins receiving payments immediately or within one year after the contract is issued. Immediate annuities are generally purchased with one lump sum investment, which will provide monthly income for life. Immediate annuities have different payment options to choose from, depending on your retirement needs. Non-qualified money invested in an immediate annuity is returned in equal tax free installments over the payment period. The balance of the amount received is treated as earnings and taxed as ordinary income.
- Variable annuities* with living benefit riders are long term contracts. Payments made into the contract are usually allocated into the available investment options, typically through mutual fund investment (with investment choices ranging from conservative to aggressive). The rate of return on the investment options depends on their performance.
The first phase of this Variable Annuity contract is called the “accumulation phase”. During this phase payments to the Annuity will increase annually by either the investment return or a set guaranteed rate, whichever is higher. This value is referred to the “benefit base” which is locked in every year and can never go lower. The benefit base is what will determine your lifetime income and will always increase during the accumulation phase.
Once you start taking income (withdrawal phase), your income can never go lower. In any given year, if the actual contract value (as a result of market performance) goes above the benefit base you will get a “step up” and your income will increase. The actual contract value is not affected by these guarantees.
Variable annuities also provide a death benefit which will at least guarantee the initial amount invested. Variable annuities may also be tax deferred on non-qualified money. The annuitant does not pay taxes on any income earned until withdrawals begin, earnings are taxed as ordinary income. In addition, there is a 10% Federal tax penalty on earnings withdrawn before age 59 ½.
Aesthetic practitioners work very hard to help people to look and feel their best. It is important to make sure that your retirement savings also look and work best for your needs. n
*Variable annuities are sold by prospectus only, which describes the risks, fees and surrender charges that may apply. Investors should consider the investment objectives, risks, charges and expenses of the investment company carefully before investing. The prospectus contains this and other information. You may obtain a prospectus from your financial advisor. Please read it carefully before investing.
This article was written by Michael Margarites and Kimberly Breslauer, Financial Advisors with Oppenheimer & Co. Inc. who can be reached at 212- 667-4106 or 212-667-4204. This article is not and is under no circumstances to be construed as an offer to sell or buy any securities. The information set forth herein has been derived from sources believed to be reliable and does not purport to be a complete analysis of market segments discussed. Opinions expressed herein are subject to change without notice. Additional information is available upon request. Oppenheimer & Co. Inc., nor any of its employees or affiliates, does not provide legal or tax advice. However, your Oppenheimer Financial Advisor will work with clients, their attorneys and their tax professionals to help ensure all of their needs are met and properly executed.