DEFINITIONS
- Annuity
A stable investment vehicle with tax deferred earnings and optional
formulas for pay outs
- Annuitize
The act of establishing the pay out formula and length of time
payments are to be made to the annuity owner or their designated
beneficiaries
- Access
The ability to withdraw cash from the annuity without penalty
- Bonus Annuity
A bonus paid on annuity deposits, typically from 3% to 10% of the
principle amount, either one time or over a period of time
- Equity Indexed (EIA)
Annuity earnings matched against one or more market indicators, such
as the Dow Jones, Russell or S&P. Opportunity for greater than
average growth rates with no downside market risk
- Cap
The maximum earning percentage allowed on EIAs
- Fee
A management fee charged by the insurance company. Some companies
do not charge fees.
- Participation
The percentage of market index growth that will be applied to the
EIA. Typically, these range from 75% to 125%.
- Period Certain
A defined period of time where an annuity balance is paid out to the
annuitant.
- Surrender Period
A period of time during which full withdrawal of the annuity will
encounter a penalty. Typical periods range from 7 to 12 years with
10 years the most common. Penalties decline over time. For example,
a 10% penalty for a ten year Surrender Period will decline 1% per
year.
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ANSWERS
Security
Annuities are generally safer than stocks and bonds and are
delivering steady, and predictable growth. After the high tech
bubble burst leaving many portfolios a shambles, people began
seeking growth with stability which is what annuities do best. The
retirement rule of thumb is that a percentage of your total
investments, equal to your age, should be placed in secure vehicles.
For example, a 55 year old person should have 55% of their
portfolio in secure investments.
Growth
Regarding growth, Annuities do two things that CDs and savings
accounts do not do. First, they pay higher interest rates. Second,
earnings are tax deferred. These two factors in combination over a
period of time with compounded growth, will have annuities
outperforming almost all other types of conservative options.
Compare a non-qualified long term CD paying 2% interest for a
person in the 30% tax bracket. The net effective interest rate is
1.4%. A 5% no fee annuity then is 3 1/2 times more productive.
An EIA with the potential to earn upwards of 10% per year would
be even more beneficial.
Bonuses
Some annuities pay bonuses on paid-in premiums. These are ideal
instruments for folks trying to quickly recover some of their recent
market losses. They are also excellent for people who plan to make
periodic deposits, such as using an Annuity as your annual IRA
account. Bonuses may range from 3% to 10%. Look for a no-fee
bonus annuity.
Management Fees
Some companies charge management fees for the services they provide.
These fees are typically variable and have a fixed top end. The
problem with fees is that they are unpredictable and in bad earning
years, may increase, thus giving you a double-whammy. There is no
proven correlation between a fee based annuity and improved
earnings. In fact, the exact opposite is often more the norm. Since
Annuities are a compounding instrument, what you do NOT pay out in
fees remains in your fund to grow at the compounded rate.
We recommend that you select one of the many no-fee annuity
products that we represent.
Tax Deferment
Growth in annuities is tax deferred, that is, no taxes are paid
until you begin to withdraw the profits. This presents a HUGE
advantage over other savings methods where profits are subject to
either income tax or capital gains taxes. The difference for
example between a taxable CD and an annuity over time is enormous.
- Cash Access
Most annuities include a provision where you can withdraw a
percentage of the principle without a penalty. This protects you in
the event you encounter some unforeseen major expense. You cannot
get that same feature in a CD. Early withdrawal penalties with CDs,
even for a partial amount, are steep to the point of cruelty.
Some forms of annuities allow you to start drawing off the
interest after one year. This is an ideal tool for people
supplementing their retirement income with the interest earned on
CDs, since annuities are typically paying higher interest rates.
Unlike CDs, after the Surrender Period has passed, you have
access to your money without penalty. CDs on the other hand,
always have a penalty clause.
- Immediate Annuities
This form of annuity performs two (2) valuable functions.
First, it allows you to create an immediate regular monthly income
stream that will last for either a defined period, or for your entire lifetime.
This is an excellent way to convert your retirement investments to monthly living expenses.
Second, Immediate Annuities will eliminate your personal aggravation in determining minimum
required withdrawals and taxes owed on qualified retirement plans.
Converting a portion of your savings to Immediate Annuities upon retirement will simplify your
life and provide the security you need.
- Options
Annuities are available in virtually hundreds of different designs.
They are very flexible and therefore lend themselves to meeting
whatever specific need or financial goals you have. One family of
products for example, includes an accelerated pay out if the owner
becomes disabled.
- Scheduled Payments
One of the greatest features of annuities is that they can guarantee
that you will NEVER outlive your money. In this respect, they are
one of the best retirement planning tools at your service.
You may select a Period Certain where a pay out is made for a
specific period of time.
You may also choose a Lifetime pay out which will provide a
specified amount of money for the rest of your life.
Last but not least, you can even choose a period such as Life +
10, where the annuity would pay out even after you died, with funds
going to a named beneficiary.
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