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.
Wednesday, October 27, 2010
Wednesday, October 13, 2010
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.
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.
Wednesday, October 6, 2010
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!
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
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