Death Benefits and Annuities

Annuities are contracts with written contractual provisions which include benefits paid to a named beneficiary. In the event of the annuitant (a person) dies, the proceeds from an annuity are passed to the beneficiary. The beneficiary can be a person or persons, a trust or an organization. If the annuity names a beneficiary, the funds are paid without the need of probate.

Several options are available to the beneficiary for receiving the funds. These settlement options can be a lump sum or a payment over a desired time period. If the annuity benefits include ant tax deferral (accumulated interest) the tax liability belongs to the beneficiary. As an example, if the annuity had an original $25,000 deposit that had grown to a value of $50,000 the taxable liability would be $25,000. The actual tax liability would be based on the tax bracket of the beneficiary.

Many assets inherited at the death of an estate qualify for “step up” in basis which means that the value of the asset at the death of the person could be sold based on the value at that time. If the asset was sold at or less than the value at the time of death, there would be no tax liability incurred. Annuities do not qualify for step up in basis because they had enjoyed a tax deferral period prior to the death of the annuitant. If the funds are received by the annuitant over a period of time, the tax liability is also “spread out” over the selected time period.

The IRS allows for the beneficiary to select a time period to make arrangements when to receive the funds. The beneficiary is allowed up to five years to defer receiving the funds and assuming the tax liability. This time period allows for the beneficiary to obtain the proper tax and investment advice as to how to proceed based on their personal situation.

If the annuitant prior to death had selected an income option for receiving money from the annuity, the payments could continue to the named beneficiary. A death claim would need to be filed so tax liability and payment selections could be made.

Why Annuities are a Wise Choice for Your Future

Putting off saving for the future for a later time is not a wise decision. You might argue that the money that you are earning today is meant to provide for your present needs and wants. You can always save more money when you receive a big cash flow sometime down the road, right? Wrong. This is the mistake that most people make. However large the amount of money you receive, it will always be easy for you to find things to spend it on.

Only a scant percentage of the population grow old to live a comfortable life. Most people grow old lacking the resources they need to live a decent life. You have to make a paradigm shift in the way you look at savings if you do not want to spend your old age in destitute. You have to sow the seeds today in order to reap the benefits later on in life when you need it more. Try to have annuities explained to you and you will find that it might be a good instrument to use in order to ensure that you do enjoy what you have worked hard for not only today but for the rest of your life.

There are various types of annuities that you can choose from. Your local financial institutions will be able to offer you a range of options. These options are largely determined by the amount of regular contributions that you can make today, the kind of yield you want to enjoy, and the mode of distribution you wish to have during your retirement years. If you have a large amount of money that you can already allocate for your growing your future retirement fund, you can choose to put in a lump sum payment in a single premium annuity.

Depending on your risk profile, you can choose to go for a variable annuity or a fixed annuity. A fixed annuity would assure you of a rate of accumulation for your funds while a variable annuity will allow your insurance company to shift your funds from time to time to take advantage of investment options that would give your money more yield.

Make sure you get all annuities explained because whatever kind of annuity you choose should match the financial situation you are in and the kind of retirement income you wish to enjoy when you retire.

Index Annuity Performance

The interest rate you receive from an index annuity varies because your investment is linked to the S&P 500, or a similar stock market index. The returns will also differ from product to product, because of different crediting methods. An index annuity balance is impossible to predict, but we can look back at how they would perform in past market conditions.

In a hypothetical comparison of an index annuity vs in a direct S&P 500 investment between 1999 and 2009.

The index annuity in this example has typical contract terms: 100% participation rate, 9% cap, and it resets annually.

A $100,000 investment directly into the S&P 500 in 1999 would have resulted in an approximate balance of $73,459 by 2009. The investment would have lost over $15,000 not to mention inflation. On the other hand, your index annuity would be worth over $150,000, a difference of over $77,000.

The index annuity never loses ground when the S & P has a negative year. The reason for this is that it 'locks' in pervious years' returns, meaning it will never go lower than its highest point. Sound too good to be true?

The trade off is that in periods of substantial market growth, the annuity will only participate in a portion of it.

However, there is comfort in safety. And, you can participate in the market, yet your money will always be safe with an index annuity.

Making Sure Your Assets are Covered

Make certain your estate is protected and liability is minimal. Learn these basic steps to be protect your assets and reduce your liability.

· Neglecting to provide trust provisions for minor children as beneficiaries of a will.

· Not updating your plan when you move to another state or change marital status.

· Having a will, but neglecting the other important documents such as a durable power of attorney, health care power of attorney, and living will and HIPAA authorization.

· Expecting that jointly owned bank accounts or other property will automatically pass under the terms of your will.

· Not realizing that beneficiary arrangements and designations supersede a will for life insurance and retirement accounts.

· Neglecting to update beneficiaries for life insurance and retirement after divorce or death of a beneficiary.

· Neglecting to naming successor fiduciaries and personal representatives (executor) in your will or trust.

· Not informing your family and personal representative (executor) the physical location of your estate planning documents.

· Neglecting to keep your estate plan upgraded and renewed on a timely basis.

· Having a living trust, but failing to fund it.

· Altering, writing or marking on the original documents in an attempt to change a name or other information without witnesses or proper documentation.

· Not seeking proper legal counsel in setting up your estate planning trust or other documents.

These mistakes only apply to those who have attempted to put in place estate planning; most people have made the mistake of not planning at all and are guilty of the error of omission.

As with all important decisions, seek competent legal and tax advice. An attorney experienced in estate planning issues can be of great assistance in regards to your personal situation. If possible obtaining a second opinion makes good sense.

Using Annuities to Achieve Your Goals

Whether your goal is saving for retirement or you have already reached that goal and you want to be sure that you will never outlive your savings, an annuity may be just what you're looking for.

Why consider an annuity? Annuities can be a key component of your overall retirement savings plan. Annuities enable you to save money on a tax-deferred basis, so all of your money can work for you now. No taxes are due until you begin to withdraw your money, which can be years later. With annuities, there is more left which may grow for you.

When you're ready to receive income, generally in retirement, annuities can provide you with a variety of income choices, including a guaranteed income that you can never outlive. In addition, if you die before income payments begin; many variable annuities provide a death benefit that guarantees your beneficiaries will never receive less than the amount contributed to the contract, less any withdrawals or fees.

There are two primary types of annuities. One is a deferred annuity, a type of long-term personal retirement account, which allows you to save and invest on a tax-deferred basis with an option to receive a stream of income at a later date. The other is an immediate annuity, which provides regular income payments right away or within a short time afterward.

Keep in mind that deferred annuities are long-term vehicles. Withdrawals of earnings from a deferred annuity are subject to ordinary income tax and may be subject to contract withdrawal charges. Because deferred annuities are designed specifically for retirement, withdrawals made before age 59½ are generally subject to a 10% tax penalty.

Why Supplement Your Retirement Savings?
Today, many investors will need to rely on their own investments to fund a comfortable retirement and protect themselves from outliving their assets.
Consider the following:

Retirement Plans Limit Your Contribution
Your employer-sponsored plan, such as a 401(k), 403(b) or Keogh, has limits on the amount of money you can contribute each year. If you are still working, you may benefit by contributing the maximum amount you can to these plans. Because your contribution is limited, however, the amount you receive at retirement is limited too. You may want to supplement this plan with a non-qualified tax-deferred annuity. Unlike employer-sponsored plans and IRAs, there is virtually no limit on the amount you can contribute to a non-qualified annuity.

Social Security and Pensions May Not Be Enough
Your Social Security and pension may provide less than half of a typical retiree's income needs. As you can see in the chart below, Social Security accounted for just 38% of the total income for retired people with incomes of $31,000 or more.

In October 2000, the average Social Security check for those age 65 or older was just $815 per month (source: Social Security Administration, 2000).

Social Security and Pensions provide only a fraction of what you may need (source: Social Security Administration, January 2003).

Life Expectancies are Increasing
People are living longer, which means your retirement assets may need to last 20 to 30 years, or more.
Inflation Can Erode the Value of Money

To maintain your purchasing power, your assets need to grow equal to, or faster than, the rate of inflation. Even if inflation averages just 4% per year, your purchasing power may be cut in half in almost 20 years.(Source: Consumer Price Index)

Only annuities provide the retirement income options that can protect you from outliving your assets. Annuities can complement your other retirement plans by providing the benefits of tax-deferred growth, retirement income options and flexibility. Variable deferred annuities also offer investment choices and beneficiary protection in the form of a guaranteed death benefit to help you build extra retirement income.

Tax Deferral Grows Your Money Faster
An important benefit of annuities is tax-deferred growth. Tax deferral means that you do not pay taxes on your earnings until you withdraw your money, usually at retirement. At that time, only your earnings are taxed. Because your earnings are not reduced each year by taxes, they can compound faster. Over time, tax-deferred compounding of your investment returns can provide a greater growth potential than a similar investment that is taxed every year.

Tax deferral is an important benefit if you are purchasing an annuity. Unlike with a non-qualified annuity, the Internal Revenue Code provides tax deferral for all IRAs so there is no additional tax benefit obtained by funding an IRA with a variable annuity.

The Annuity Advantage

Comparison of a Fixed Indexed Annuity and a Fixed Annuity

The main feature that a Fixed Indexed Annuity has over a Fixed Annuity is that a fixed indexed annuity takes the risk out of investing in the stock market. The reason for this is that, with a fixed indexed annuity, you are guaranteed by the insurance companies a minimum rate during poor market conditions. While a fixed annuity offers the same guarantee of a constant return rate, the fixed indexed annuity gives investors the opportunity to cash-in equity-based growth. While the investor may not know how much money their account will accumulate over the years, debt based instruments are always out-performed by equities.
Comparison of a Fixed Indexed Annuity and a Variable Annuity.

What makes a fixed indexed annuity superior to a variable annuity is that a fixed indexed annuity is recession proof and can protect your investment from other economic mishaps. Seeing as an important aspect of gaining wealth is the ability to manage losses effectively, a fixed indexed annuity allows you to maintain a constant return rate despite the gloomy economic state. So while variable annuities and loosing their investors money, the safety net provided by a fixed indexed annuity gives you comfort in knowing that you are still earning money.

Why People Choose a Fixed Indexed Annuity

What makes a fixed indexed annuity so attractive to investors is the simple fact that a fixed indexed annuity is guaranteed to make the investor break even, thereby giving the investor piece-of-mind. Unlike the variable annuity, which depends upon the state of the economy, fixed index annuities cannot be negatively affected by economic downturns as they are guaranteed a constant rate of return.

Also, that people can cash in equity-based growth makes fixed indexed annuities more attractive that fixed annuities. Overall, with the benefits offered by fixed indexed annuities over fixed and variable annuities, fixed indexed annuities should give investors piece of mind when investing and/or planning for retirement.

Ask Mr. Annuity: Stock Market Growth With No Market Risk

Ask Mr. Annuity: Stock Market Growth With No Market Risk: "How would you like to own an annuity that locks in stock market gains when the market is rising, but also protects your investment against a..."

Stock Market Growth With No Market Risk

How would you like to own an annuity that locks in stock market gains when the market is rising, but also protects your investment against any losses when the market is falling? That's right, your policy value is never reduced because of negative stock market performance.

Believe it or not, there is such an investment product and it's called an Equity-Indexed Annuity. With an Equity-Indexed Annuity, your return is tied to the increase in one of several stock market indexes, such as the S&P 500.

However, if the stock market goes down, you do not lose any of your money. In fact, most Equity-Indexed Annuities will even GUARANTEE you a minimum annual return (typically 3%), even if the index you invested in goes down the entire time you are invested. An Equity-Indexed Annuity is a great place to protect the money you've saved in your CDs, money market accounts, IRA accounts, etc. Or perhaps as an alternative for the money you currently have invested in stocks and mutual funds. Equity-Indexed Annuities can greatly improve your earnings potential, while at the same time keep your principal safe from market fluctuation.

Additionally, Equity-Indexed Annuities are a good option for people who already own annuities and have seen their interest rates drop substantially. Many people do not realize that you can easily trade-in an older, possibly under-performing annuity for one that better suits your needs.

This exchange can be accomplished with no out-of-pocket expense or current taxes to pay!

Just how good of an investment are Equity-Indexed Annuities?

Well, if you had bought one just before the collapse of the stock market instead of investing directly in the stock market itself, you would be a much happier person right now!

Annuities vs Life Insurance?

Annuities Systematically distributes accumulated assets Pays annuitant an income for life in exchange for a premium Reduces the financial uncertainty of living too long Premium is determined by age, sex, amount of income, class of annuity and health Life Insurance Creates an Estate Pays beneficiary specific sum at death in exchange for a premium Reduces the financial uncertainty of dying too soon Premium is determined by age, sex, amount of death benefit, type of insurance and health

Annuity Payouts: Interest Only Option

Annuity contracts offer numerous options to receive your accumulated funds as retirement income.

One option rarely used is the interest only option. At any time you can withdraw the earned inertest on a monthly basis. This allows for your account value to remain the same each month as you withdraw the monthly interest.

As an example if your account value was $100,000 and the interest paid was 5%, you could withdraw a monthly interest check of $416 without invasion of principal. The value to this option is deferring any permanent decision until a later time period. The interest income option is cancellable at any time so total control is maintained.

For mroe information regarding Annuity Payout and/or Lifetime Income Options, call us at 602.795.6270.

Contributors: Askmrannuity.com, annuity.com

Listen to the Ask Mr. Annuity Radio Program

My name is Steve Lance. I am the owner of Lance Marketing and The Ask MR. Annuity Financial Network. You are invited to listen to the Ask Mr. Annuity Radio show (http://www.kcardsofcal.com/amaradio_9-22.html), and learn about ways to use it to your marketing advantage.

Advisors Are Selling More Annuities

Here's food for thought...

According to National Underwriter’s “Russell: Many Advisors Want to Pare Client Lists,” financial advisors have an average of 255 clients.

Of those surveyed, 39% said that they have been selling more annuities to their clients.

While most of the advisors already use annuities for their clients, those who don’t seem to have little interest in transitioning to this guaranteed income product. Maybe they will change their minds as clients show more interest in lifetime guaranteed income sources.

Information extracted from a post by AnnuityFYI.

Annuities: The official retirement vehicle of the Obama administration.

Based on a recent article by RON LIEBER.

As slogans go, "Annuities: The official retirement vehicle of the Obama administration" is hardly “Keep Hope Alive,” or even “Change We Can Believe In.” But there were annuities, in a report from the administration’s Middle Class Task Force that came out this week. They are among the tools the administration is promoting as it tries to give Americans a better shot at a more secure retirement.

At its simplest -- which is how the White House seems to want to keep it -- an annuity is something you buy with a large pile of cash in exchange for a monthly check for the rest of your life.

If the biggest risk in retirement is running out of money, an annuity can help guarantee that you won’t. In effect, it allows you to buy the pension that your employer has probably stopped offering, and it can help pick up where Social Security leaves off.

“I never thought I’d have the president as a wholesaler for us,” said Christopher O. Blunt, executive vice president of retirement income security at the New York Life Insurance Company.

After all, the announcement from the White House did make it clear that the administration was looking to promote “annuities and other forms of guaranteed lifetime income.” That suggests the administration is open to other solutions, though there are not many others that are as simple as the basic fixed immediate annuity (also known as a single premium immediate annuity) that delivers a regular check for life.

As the saying goes, "any news is (usually) good news. And, as the volatility of the market produces more insecurity as to where retirement funds should be safely parked, annuities have emerged as the obvious safe harbor.

No matter what your political views, it is reassuring that Washington has taken this step toward financial responsibility.

Annuities Now Offer Long Term Care Options

In financial planning, clients love to discuss building their wealth and investments, but they often cringe when we mention any insurance protection, especially long-term care coverage .Their extreme reluctance to consider long-term care is really quite normal. Who wants to think about buying coverage for nursing home care when it can be such an unpleasant experience, and we really hope it won't happen to us?

However, most long-term care services actually are provided in a person's own home according to the U.S. Department of Heath and Human Services. Clients have many more options for their senior years if they find some way to plan for these occurrences. Up until this year people basically had only two options -- self insure or buy long-term care insurance coverage.

Beginning in 2010, Congress added another planning option called the long-term care annuity. The underlying base of a "LTC annuity" is a fixed annuity. Fixed annuities are not new -- they have been available for many years. They are guaranteed by an insurance company, the funds accrue with a competitive interest rate, and the account grows tax-deferred.

What's new is that insurance companies have built in a long-term care option into a LTC Annuity. This option is not a rider and there is not a separate premium paid by the client. The option is just an election to use the long-term care benefit if you need it. If you never need the option, your interest and principal are available for you or your beneficiaries just like a regular annuity.

To make this annuity more attractive, Congress changed the tax law so that distributions from these LTC annuities are "tax free" if used for long-term care. So you can accumulate funds on a tax-deferred basis and use them tax free if needed for long-term care. If you never need this type of care, you simply receive tax distributions as ordinary retirement income or pass them to your beneficiaries. This is an excellent opportunity to legally stiff the IRS!

Pros

• Age limitations are very liberal. People up to age 85 can purchase.
• Simple medical underwriting. There are no physicals required and most people can qualify, even if they have been denied traditional long-term care insurance.
• Tax-deferred accumulation of earnings.
• Potential tax-free use of distributions.
• You or your heirs receive any funds not used for long-term care.
  

Cons

• You need to have a lump sum to invest, usually at least $40,000.
• There are penalties if you surrender the annuity in early years.
• As with all financial options, "One size does not fit all."
• We encourage everyone to discuss their particular needs with a Certified Financial Planner to determine what long-term care options are needed and suitable in your individual circumstances. At least now Congress has given all of us an additional tax-favored option to consider.

Column by Van Sievers CFP • September 7, 2010

Fixed Index Annuities

A Fixed Index Annuity (also equity-indexed annuity) is a special type of fixed annuity contract that fuses the safety of fixed annuities with higher participation in the financial market. Strictly speaking, it is not an investment- as it is primarily an annuity contract between an annuity investor and insurer or annuity provider. Although Fixed Index Annuities represent an improvement on fixed rate annuities, they inevitably have their merits and demerits.

Guarantees
Fixed Index Annuities- like other insurance contracts- offer investors guarantees on their premiums and returns. Apart from safety assurances for contributions, Fixed Index Annuities offer investors minimum (base) guaranteed rates of return. This suggests that even though their performance is linked to an external index, the annuities are insulated from severe downturns in the market.

Market-Type Returns
A major benefit of equity-indexed annuities is that they offer returns that link to market performance through an external index (such as the S&P 500). Annuity investors on this plan can benefit from favourable fluctuations in the market while being insulated from sharp downturns. Fixed Index Annuities also offer higher returns than fixed rate annuities, CDs and Money Market Funds.

While this is an obvious benefit, the annuity contract determines how much this benefit trickles down to the Fixed Index Annuity investor. Interest rate caps, margins and participation rates are features of this contract that determine how much the annuity contributor benefits. The method of indexing can also minimize or increase this benefit. How the FIA is indexed can play a huge role in determining whether market-type returns is a token benefit or not.

Taxation
Qualified equity-indexed annuities benefit from tax-deferred growth in the accumulation phase. Tax-deferred growth with eventual income taxation is far superior to accumulation with lower taxation. The downside to this tax benefit is that tax authorities treat annuity payments and distributions as income and not capital gains. As a result, the income tax bracket is applied instead of the less-burdensome capital gains tax. However, the benefit of tax-deferred growth makes the eventual tax implications a lot more palatable.

Guaranteed Lifetime Income
One of the primary merits of an annuity is the provision of guaranteed lifetime income. The Fixed Index Annuity provides this important feature as well. As a long-term contract with an insurer or annuity provider, FIAs also bear hefty charges and penalties from insurers and/or tax authorities in the event of premature withdrawal or surrender. Some insurers even apply non-indexed rates if the annuity is not carried to maturity, which effectively cancels any benefit of having an equity-indexed annuity.

Conclusion
This is a terrific overview by D. Victor (Ezine article). If you have further questions about how Indexed Annuities can help your portfolio, please feel free to call me at 888.939.0135 .

The Fixed Indexed Annuity Comparison

During eight five-year periods starting in 1997 through 2004, data shows that the FIAs (Fixed Indexed Annuities) looked at offered an average annualized return of 4.19% to 9.19%, with no negative years. By contrast, an investor in the S&P500 would have seen four positive five-year periods and four negative ones.

Making The Case for Fixed Indexed Annuities
By Kerry Pechter Tue, Aug 24, 2010
Retirement Income Journal

Read the rest of the article... click on the link below:

http://retirementincomejournal.com/issue/august-25-2010/article/making-the-case-for-fixed-indexed-annuities

Is an Annuity Right for Me?

In the past, annuities were considered investments only for people nearing retirement. But today, annuities can be smart investments for people of all ages. Remember, an annuity can be invested in a variety of different investment instruments, offering everything from modest to fast capital growth alternatives. The following are good uses for annuities:

1. You need a higher interest-rate alternative to Certificates of Deposit(CDs) and money market funds

2. You want to make your long-term savings grow faster without current taxation.

3. You need to save more for retirement, but you have "maxed out" your IRA and 401(k) or 403(b).

4. You need to roll over (reinvest) existing tax-deferred savings, like pension plans.

5. You need to guarantee yourself an income for the rest of your life.

6. You need to guarantee yourself an income for the rest of your life and your spouse’s life.

7. For purchasers of a special type of annuity called an Equity Index Annuity, You want to protect your "principal" with a guaranteed rate of return while investing in the equity markets.

TOP TEN REASONS YOU DON’T NEED A LIFETIME ANNUITY

10. You still live at home and your parents have yet to cut-off your allowance annuity.

9. You grow your own food, make your own clothes, and barter for other needs.

8. You have extremely successful adult children who gave you a platinum American Express card for Christmas with a $100,000 credit limit.

7. You worked in Congress for a year and are now guaranteed that salary for the rest of your life.

6. Your closest friends refer to you as “The Donald.”

5. Your new money manager has promised you that everything is back to “normal” and he will earn you 8% annually, after inflation, for as long as you live.

4 You just received a life sentence without parole and feel confident in the stability of our prison system.

3. Your trust fund could feed a small country.

2. You live in a warm area, wear shorts and flip flops, eat wild nuts and berries and know you can live on Social Security’s after-tax $12,000/year.

AND, THE NUMBER ONE REASON YOU DON’T NEED A LIFETIME ANNUITY

1. You thought money trees were a joke until you found one in your back yard!!

Annuities vs CDs

Once upon a time, CDs were THE WAY TO GO. They offered short-term, liquid accounts. However, while the world of principal preservation options has advanced, the mindset about CDs has not changed for many people in, or going into their retirement years.

Annuities and CDs (bank certificates of deposit) are similar in that they are safe, secure investments with guaranteed rate of returns based on interest rates, both issued by large financial institutions, CDs issued by banks, Annuities offered by insurance companies, but they both possess inherent differences as well. The big differences are that while Annuities offer everything CDs offer, they carry several advantages.

1. Generally Higher returns
2. Tax-Deferral
3. Liquidity
   

CDs do have FDIC protection to guard against Bank or banking industry failure, but Annuities also have safety measures put in place by the state to ensure Insurance companies have reserve pools in place. Insurance companies may also be vetted for financial strength by obtaining their rating from objective rating firms -- Standard & Poor's, Moody's, A.M. Best or Duff & Phelps . The more solid the rating usually equates to a more solid financial backbone of Insurance Company. Higher Returns: Annuities, like CDs, are hinged to interest rates. But when rates are low so are CD returns whereas annuities have a minimum guarantee in place, usually 2% to 4%.

Your investment will never dip below the guaranteed minimum interest rate during times of falling or low interest rates. Again, low interest rates mean CD returns will be low as well. To offset the problem of low or falling interest rates, insurance companies equip annuities with guaranteed minimums. This is an agreed minimum rate of interest so that your investment is assured not to fall below the minimum performance even if CD rates do. Tax-Deferral:You pay annual taxes on CD interest earned without being able to withdraw funds until your investment term is over. With annuities, there is also a set term, but the earnings are tax-deferred.

You only pay taxes on interest earned when money is withdrawn. So with annuities the deferred tax on your interest remains in the investment earning you more and more money, instead of being paid out to state and federal tax agencies on a yearly basis. Liquidity:CDs do not allow you to withdraw any monies during term... period. Annuities have provisions that allow you to withdraw money, generally 10% of your account value annually plus many contracts allow you to remove the earned interest on a monthly basis.

Several other contract provisions allow you access to all of your funds such as in the event you are hospitalized, undergoing a life-threatening illness, subjected to a permanent or extended stay in a nursing home, or other major calamities that affect you economically. In addition, annuities can be structured to pay-out for the life of the owner over a fixed term such as five or ten years, thereby spreading out your tax-burden and providing enhanced income security.

In short, Annuities offer enhanced flexibility.

Portions borrowed from Annuity.com

The Single Premium Immediate Annuity (SPIA)

A single premium immediate annuity offers an income stream that will last as long as the annuitant (or joint annuitant, if that option is selected) lives or for a predetermined period, depending on the option selected at the time of purchase. The fixed immediate annuities include nominal, graded and inflation-adjusted payment options. There is also a variable option in which the payout is determined by the returns on the investments chosen by the investor.

In exchange for these payments, the annuitant surrenders a specific amount of money to the insurance company. These payments can be based on a single or joint life. Normally this purchase is irrevocable, and the money used to make the SPIA purchase is not available to one's heirs, even if the annuitant dies shortly after purchasing the annuity, unless a predetermined payment period was selected. However, selecting one of the available term-certain payment options will result in lower payments.

An SPIA is probably one of the easiest annuity products to understand. You give the insurance company a specific sum of money in exchange for an income stream that you can't outlive. The SPIA can offer peace of mind in bridging income shortages. For example, if a retired couple needs $4,000 per month to cover their living expenses, and Social Security and pensions provide $3,000 per month, they could purchase an SPIA that would pay out the needed $1,000 per month for as long as either one of them lived. However, they would need to keep in mind that most annuity payments aren't indexed for inflation, so over the long term, the spending power of that $1,000 would decrease.

Should the couple choose to purchase one of the few inflation-indexed SPIAs available, they'd have to either pay a higher premium or receive a lower initial payment. And since inflation-indexed annuities are only offered by a few insurance companies, there's not a lot of competition to help make those rates attractive for the annuitant. Finally, it's important to remember that the return of your principal is included in the promised payment stream.

An SPIA can also provide a "bridge" that could allow an investor to delay taking Social Security until later in life. Doing so could mean larger Social Security payments to both the recipient and his/her spouse. Boglehead Ron explained his use of an SPIA this way: "In our case, we used it as ‘SS gap insurance' since I retired at 59 but will not claim SS till age 70 (primarily for the benefit of my wife)."

FIXED INDEXED ANNUITIES... TOO GOOD TO BE TRUE?

FIXED INDEXED ANNUITIES

Fixed indexed annuities garner higher returns than a CD or money market account without giving up security. The Fixed Indexed Annuity is a fixed hybrid product, and is quickly overshadowing CD’s, mutual funds and other stocks as the new safe place for people to invest their money.

HOW IT WORKS
A fixed index annuity will provide at least 1-3% returns, compounded annually. This minimum guarantee lasts throughout the contract; however, earnings can exceed this rate.

Fixed indexed annuities are linked to the performance of another equity index like the S&P 500. The overall performance of the US stock market is represented by the S&P 500. If the market performs well, your investment will enjoy a percentage of the gains. If and when the market goes down however, you are sheltered from losses.

Gains, But Not Losses?
Fixed index annuities sound too good to be true. Well, they are real. When the market performs well, you earn a percentage of the gains subject to a cap. When the market goes down, you do not hold any of the risk and therefore do not lose any money. Every year, any earnings will be locked in at the anniversary index point. In fact, on particularly good years, a fixed index annuity can gain 2 or even 3 times the guaranteed interest rate and not lose any of those gains when the market subsides again.

TAX DEFERRED GROWTH
The icing on the cake for fixed index annuities is that if all earnings are kept in the annuity they will grow tax deferred. You don;t even have to file a 1099 on on Fixed indexed annuities.
While this product is for all ages, it is especially applicable to retirees. Small business owners are using FIAs in their 401(k) and SEP-IRA retirement plans as well.

Are you interested in learning more about Fixed Indexed Annuities? Call us toll free at 888.939.0135. We will be happy to answer your questions.

Are Annuities Right For You?

There are many ways to save for retirement or if necessary, a rainy day in the future. Annuities are one example of this. This should then bring you to the question- are annuities right for me? There is one thing that is very important to bear in mind. Purchasing annuities is not the way to go for everyone. You should not buy an annuity if you have not fully funded your 401k, your 403b or your IRA (or if you do not intend to fully fund it for the calendar year presently upon you). These plans are one of the first steps in planning for your financial future and need to be taken care of before you consider investments such as annuities.

Are annuities right for you? That is a question that can be answered with a resounding yes if you have a fully funded retirement plan or plan to fully fund it and have money left over to invest. Perhaps you already have a well rounded and diversified portfolio that includes bonds, mutual funds and a stock or two. Annuities can also be an excellent complement to your portfolio. Let us look closer at how that can be.

An annuity is comparable to a retirement plan in that both allow for tax-deferred compounding until money is withdrawn from the account. However in the case of an annuity you are not limited to the amount of money you can invest. This is a big plus of such.

Most annuities feature a type of death benefit provision of one sort or another. In this case the issuer of the annuity guarantees that upon the death of the purchaser the total premiums will be paid out to the beneficiary (or beneficiaries). Not all annuities handle this in the same manner. Some "step-up" on the anniversary of the date that the purchase of the annuity was made to the highest value of any anniversary that preceded it. Others guarantee a minimum of five to seven percent interest compounded on a yearly basis while still others combine the greater of the two features described here.

But there is more additional benefits to think about when asking the question- are annuities right for me? As long as you are not receiving annuity payments you do not have to report them to the IRS as there is no tax bill nor is there a 1099. As well your creditors cannot go after the money in an annuity if you get behind or default on any debts and an annuity will never go into probate in any one of the 50 states.

Annuities: Creating Guaranteed Income for Life

Retirement today requires more planning than in previous generations. Sources
of steady retirement income have changed, as fewer and fewer workers are
covered by traditional employer-provided pensions that provide a lifetime benefit.

In addition, advances in medicine have resulted in increased longevity—today’s
retirees may spend 20, 30 or more years in retirement.

Given this landscape, workers nearing retirement face an imminent crisis:
how to generate a stream of income that is guaranteed to last throughout
retirement. Whether they have access to employment-based retirement plans
or not, achieving stable and secure income in retirement is a challenge for many
Americans.

With the decline of defined benefit plans and increased popularity of defined
contribution plans, such as 401(k)s, responsibility for managing retirement savings
has shifted from the employer to the individual. Unlike traditional pensions that
provide a stream of payments to retirees for life, defined contribution plans
typically offer a lump sum that retirees must then manage on their own.

Other than Social Security and the defined benefit system, the only means to
create a guaranteed income stream in retirement is through an annuity. An annuity
is an insurance contract that offers an efficient solution to what otherwise could
be an overwhelming asset management task: creating a steady paycheck in
retirement that cannot be outlived. It helps to ensure retirees don’t overspend and
run out of money in retirement and that they don’t live too frugally either.

Individuals without access to workplace retirement savings plans have an even
greater challenge: to independently accumulate savings during their working years
and manage those savings to last throughout retirement. An annuity can address
both of those needs.

SUCCESS OF THE PRODUCT
Annuities offer solutions to both sides of the retirement equation: They provide
ways to accumulate retirement savings and to turn savings into an income stream
that cannot be outlived.

The lifetime income option through annuitization allows retirees (and their
spouses) to maximize retirement income without having to worry about payments
stopping while they are alive. At the time of purchase, annuity owners are
guaranteed that if they choose to annuitize at a later date, they will receive
a benefit based on the purchase rates at the time the annuity was issued or
annuitized—whichever rate is more favorable to the annuity owner. Given the
changes that can occur over time with respect to the economy, longevity, or an
insurer’s costs, this is a valuable consumer benefit.

Many insurers offer additional annuity options-—such as the guaranteed minimum
withdrawal benefit—which allow consumers to create and manage income flow
to meet various income needs as they age while still offering guaranteed income
for life. Other income options, which do not have a lifetime guarantee, also are
available.

CURRENT TAX TREATMENT
By encouraging long-term savings during the working years and helping individuals
manage assets during retirement, the current tax treatment of annuities promotes
financial discipline.

For those who are years away from retirement, or are retired and have assets
that don’t need to produce income right away, a deferred annuity allows savings
to build up, free of current federal income tax. When payments are received, the
portion that comes from earnings is taxed as ordinary income.

To encourage long-term savings for retirement, there are tax penalties for
withdrawals from deferred annuities before age 59½ in addition to the income tax
due on earnings. The tax penalty is not applied to certain lifetime payouts, death
benefits, or payments made if an annuitant becomes disabled. Other exceptions
may apply.

The current tax treatment has served as an effective savings incentive: 77 percent
of individual annuity owners report that they have set aside more for retirement
than they would have if the tax-deferred growth of annuities was not available.
A large majority cite the tax treatment of annuities as a “very” or “somewhat”
important reason for their purchase.

The current federal income tax treatment of annuities is reflective of sound public
policy that recognizes the annuity’s unique role in helping Americans accumulate
savings for retirement and guarantee a steady stream of income for life.

CONCLUSION
An annuity can help American workers meet the challenges of the changing
landscape of retirement. In fact, eight out of 10 individual annuity owners say
they will use their annuity savings for retirement income.3 With the shift from
defined benefit to defined contribution plans and increased longevity, the role of
the annuity in retirement has never been more important. Policy-makers should
explore ways to encourage more Americans to turn to annuities for long-term
savings and guaranteed lifetime income.

Why Indexed Annuities Instead of Bonds?

If ever there was a time for Equity Linked Indexed Annuities it is now.

These products are guaranteed, their crediting rates are tied to outside markets which will replicate inflation, their value will not be diminished, they are NOT 30 year commitments and at anytime they can convert to income. In the event of illness, the funds are available. In the event of emergencies, the funds are available. In the event of death, the full value of the asset is available.

Think safety, think security, think Equity Linked Indexed Annuities.

H.R. 4173: Harkin Moves Ball On Annuities

This is great news for us all...

Members of the conference committee responsible for reconciling the House and Senate versions of H.R. 4173 have been looking at the indexed annuity jurisdiction issue.

Sen. Tom Harkin, D-Iowa, asked members of the conference committee to add an amendment to Title IX of the financial services bill that would classify fixed indexed annuities as insurance products -- if the FIA products are sold by insurers domiciled in states that have adopted the model regulations recently developed by the National Association of Insurance Commissioners, Kansas City, Mo., or if the insurer selling an FIA product has agreed to apply the NAIC standards to all of its FIA sales.

The amendment would have no affect on the legal status of the FIA products not subject to the NAIC model rules.

Why Buy a Deferred Annuity?

There are a number of good reasons to consider a deferred annuity as part of your financial retirement plan:

You postpone paying income taxes on any earnings until you withdraw money, typically during retirement, when you may be in a lower tax bracket. All earnings grow tax-deferred.

You can put in as much money as you want. Unlike Individual Retirement Accounts (IRAs), there is no IRS restriction on the amount that can be contributed annually to deferred annuities with your after-tax money. You can, however, use a deferred annuity to fund your traditional or Roth IRA, in which case you would operate within IRA limitations.

You can provide death benefits to your heirs. If you die prematurely, your annuity can offer a death benefit to your beneficiaries without the costs and delays of probate. Your beneficiaries will never receive less than what you have contributed (less any withdrawals). In addition, a spouse who inherits an annuity before distribution has begun can step in as the new owner of the annuity and the tax deferral continues until amounts are withdrawn. If distribution payments had begun, the benefits would generally have to be distributed to the beneficiary at least as rapidly as through the method in effect at the time of the annuitant's death. Taxation will continue to apply to those proceeds. Generally, a beneficiary who inherits an annuity before distribution begins can request a lump sum distribution without penalty but will be subject to full taxation on the accrued interest or gain on the contract.

Annuity Buyers Enjoy Peace of Mind

A new Gallup poll shows that, despite a downturn in the financial markets, a majority of annuity holders feel secure about their retirements. The poll, conducted in partnership with the Committee of Annuity Insurers, revealed that middle-class people rely heavily on annuity products in their retirement planning.

As IRI president Cathy Weatherford explained, “The findings of this poll help to underscore an emerging trend within retirement planning: As more and more Americans begin to take on a renewed responsibility for their retirement security, they are increasingly turning to annuities as the solution to help fund their golden years.”

As Weatherford points out, in generations past, the guaranteed income of Social Security gave retirees confidence that they would receive a certain income. But as the future of Social Security has become more uncertain, the guaranteed income provided by annuity products has become more attractive to those wishing to secure their futures. Buyers of these products enjoy the peace of mind provided by an insured retirement strategy.

BY Senior Market Advisor

Annuities Let Consumers Be A Little Naughty

Buying a fixed annuity is a virtuous decision. The consumer is saying they do not want to gamble with their principal and so they have placed it where it will be safe and provide a nest egg or lifelong income, helping them to avoid becoming a burden on their children.

Think of an annuity purchase as a supreme exercise in self-control today to protect tomorrow’s self-interest. It is the financial world’s equivalent of the two-mile morning jog, eating the salad instead of the sundae, or watching PBS instead of E!
But virtue isn’t usually fun because it goes against our impulse for immediate gratification, so often we will reward ourselves for being virtuous by treating ourselves to a little vice. Consumers need to be told that not only is buying an annuity a virtuous decision, but that it is so virtuous it will allow them to be a little naughty.

Case study No. 1:
A couple may have $75,000 sitting in a 2 percent certificate of deposit. They would like to take a little cruise but the cost of the cruise would eat up a year’s interest. If a 4 percent yield fixed annuity could be found, the couple could maintain the level of interest earned by the former bank (virtue) and still sail the sea (vice).

Case Study No. 2:
Another couple may also have $75,000 sitting in a 2 percent CD, but there’s a conflict. The husband wants to ensure at least the current interest is earned but the wife is willing to gamble if there’s a potential for higher returns somewhere else. If an index annuity were suggested, offering a fixed account yielding at least 3 percent, the couple could place $50,000 on the fixed side (virtue) and put $25,000 in an index-linked option (vice) with higher potential income (virtue).

Virtue and vice
Retirees may be withdrawing 4 percent a year to try to make the money last, but this low payout means they now stay at home instead of eating out once a month. They should be made aware of annuities offering guaranteed joint lifetime payouts of 5 percent or 6 percent, which promise they will never run out of income (virtue) and perhaps let them dine out monthly again (vice).
Determine the additional interest the annuity could produce and then ask the consumer, “If I gave you an extra (fill in the blank) dollars, what would you do with it?” This will identify the vice, and now you can show why the annuity is the virtuous decision.

BY JACK MARRION

As the stock market has battered your savings, college funds, and emergency funds many people have been left with anxieties and questions about paying the bills and "where to go next." I hope this blog will help those people find valuable solutions.