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Annuities

UNDERSTANDING ANNUITIES


Annuities are long-term investments offered by insurance companies with the specific focus on retirement planning. Annuities can be offered in three different forms; variable, fixed and fixed indexed.


Variable annuities are high risk annuities that do not offer a guarantee of the principle investment; no benefit for the annuitant.


Fixed annuities offer a guarantee of your principle investment however a capped product will only return up to a certain percentage of a portfolios performance and in a strong market once could be leaving a lot of money on the table; protection from loss but limitation on gains.


Fixed Indexed annuities offer both the security of your principle investment being protected from loss by offering a guarantee of the initial principle. Fixed Indexed annuities also offer full portfolio gains with financial growth opportunities; protection from loss with no caps and full portfolio gain potential. *The amount that your portfolio returns may vary depending on the product. 


HOW DO ANNUITIES WORK?


The annuitant (owner) enters into a contract with the insurance company for a term of typically five, seven or ten years. The annuitant will fund the annuity with a lump sum single payment. The funds typically come from ones qualified funds like an IRA, 401K, 403B or from non-qualified funds like a savings or checking account.


The annuity company will take the lump sum payment and invest it into a portfolio of the annuitants choosing, the portfolio option is specific to the product  but usually include an S&P 500 option. The portfolio option is how the annuitant generates dividends from their principle investment. 


In exchange for the contract the insurance company will guarantee your principle investment against loss meaning that whatever amount you deposit into your annuity account is protected from loss. 


IS AN ANNUITY RIGHT FOR ME?


Did you know that the top ten (10) concerns facing those who retire are:


  1. Government reducing social security benefits
  2. Government reducing medicare benefits
  3. Having significant healthcare cost
  4. Having a long term care cost
  5. Tax increases
  6. Inflation costs
  7. Outliving assets
  8. Prolonged stock market downturn
  9. Becoming widowed
  10. Becoming a full time caregiver


Assuming your yearly spending is a modest $50,000 in order to maintain your current life style you would need to have 1.25 million dollars in savings. Solely relying on social security benefits won't cut it, the average social security beneficiary receives $1,371.00 per month from social security which amounts to $16,452.00 per year which is just under the poverty level.


We've established social security alone is not going to get you through your retirement years which is why it's that much more important to protect the your retirement funds you've built over the years. We use the rule of 100 which says:


  • 18-25 years old should be 75% aggressive in the market and 25% conservative
  • 25-50 years old should be 50% aggressive in the market and 50% conservative
  • 60-75 years old should be 25% aggressive and 75% conservative


If you are age 60 - 75 and still invested in the market your at risk, regardless of your risk tolerance (aggressive, moderate, conservative) your subjected to the volatility of the market which means your retirement account can be negatively effected. 


We can eliminate your risk and protect your nest egg by transferring your retirement account into a Fixed Indexed Annuity and guaranteeing that you account balance only goes up! This will ensure that the funds you have worked your entire life to build up remain with you to get you through these retirement years. Fixed Indexed Annuities are for everyone!



ARE THERE FEES ASSOCIATED WITH AN ANNUITY?


Unlike a brokerage account that has yearly servicing fees and transaction fees, annuities do not have fees.


WHAT TAX IMPLICATIONS DO I HAVE WITH AN ANNUITY?


Annuities are a tax deferred vehicle meaning that you do not pay taxes on the funds in your annuity account until they are withdrawn. If the funds used to start your annuity have not yet been taxed those are called qualified funds which means they qualify to be taxed. In this scenario the full account balance(principle investment and earned dividends) is subject to taxation at the time of a withdrawal. If the funds used to start your annuity have already been taxed those are called non-qualified funds which means the funds used to start the annuity have already been taxed and may not be taxed a second time, however any earned dividends are subject to taxation.


DO I HAVE TO TAKE WITHDRAWALS FROM MY ANNUITY?


No. Depending on the annuity product you select you may be eligible for a "free" withdrawal from your annuity. This would be a penalty free withdrawal, typically up to 10% of your account balance on a yearly bases. The withdrawal would be subject to taxation.


It's  also important to understand that the IRS has a Required Minimum Distribution (RMD) at age 70.5 and the distribution is usually around three percent of your account balance. 


WHAT RETIREMENT NEEDS AR MET WITH AN ANNUITY?


  • Build your retirement nest egg
  • Diversify your retirement assets
  • Increase safe, predictable earnings on savings
  • Guarantee a lifetime income stream
  • Gain flexibility to fund unexpected events, like critical illness or nursing home care
  • Transfer assets to your heirs