Income Strategies
Retirement and Annuities
The Ideal Retirement
For most Americans, the ideal retirement includes these four main characteristics:
Safety – They don’t want to lose their hard earned money, especially knowing they can’t re-earn it.
Growth – Eighty percent of those surveyed said they prefer moderate growth with safety instead of higher potential with risk and volatility.
Tax Management – Most people believe taxes will go up in the future, so their ideal retirement strategy offers a way to control or limit taxes.
Liquidity – Those nearing retirement want a strategy that enables them to live comfortably throughout retirement, taking income as necessary.
Take Control
How would you feel if you knew that your money would never again take a plunge because of market swings? If you are tired of the market’s roller coaster ride, but want more growth than the minimal returns that bank CDs offer, then annuities may be a good fit for you. Take control over your retirement without having to spend your time studying the market and guessing its next move.
An insurance product does exist that enables you to protect your savings, earn steady growth and have funds available when you need them. It’s called a Fixed Indexed Annuity. Linking an index with a Fixed Indexed Annuity insurance product provides protections from market volatility and can be a “safety net” for your savings, while providing opportunity for competitive growth within the context of an insurance product.
One study by Zebra Capital and Roger Ibbitson, finance professor at Yale, found that historically, Fixed Indexed Annuities can potentially out-perform bonds with better downside protection4. If you are tired of market volatility, but want more growth than the minimal returns that bank CDs offer, then a Fixed Indexed Annuity insurance product may be a good fit for you.
An annuity is an insurance contract between you and an insurance company that is designed to help meet retirement and other long-range goals. To fund an annuity, you can either transfer your money in one large payment or you can make a series of payments.
In return, the insurance company agrees to pay you a specific amount of income per month, quarter, or year. This income can start immediately or at some future date, depending on the type of annuity you purchase and the options available within that annuity. Income is paid for either a chosen period of time or even for the remainder of your life. An annuity is an insurance product and is sold by licensed insurance producers.
Annuity Basics
The purchase of an annuity insurance product is one of the fastest-growing retirement strategies in the U.S. Last year, consumers moved more than $230 billion dollars out of the stock market or banks and into the purchase of annuities … to reduce or eliminate risk and to get their savings growing again. A recent Gallup Poll of over one thousand annuity owners reveals a striking contrast between the American population at large and those who purchase an annuity. While most national polls show a decline in consumer confidence in retirement, more than half of annuity owners believe that they have enough or more than enough money to cover their financial needs in retirement. Ninety-three percent are happy with their annuity purchases and still own their first.
What You Should Know About Today’s Annuities
Fixed Indexed Annuities are on the forefront of retirement planning.
People have always known that a standard fixed annuity can provide them safety and tax-deferment, but today’s Fixed Indexed Annuity insurance products allow you more opportunity for growth and have even better options for liquidity. If you’ve ruled out fixed annuities for your situation, I’d strongly advise you to continue to learn more and meet with me for more personalized details and a suitability assessment.
How Can I Get More Details on Specific Annuities?
At this point, the process for getting more details on annuities consists of you and I meeting for an initial discussion. This is not a sales meeting, but rather a time for you to talk about your current situation and future goals, as well as ask questions you may have from this course.
If your questions are answered to your satisfaction and we both agree that moving forward with another meeting would make sense, then we will schedule that at the end of our first meeting. There is no obligation in this first meeting. The goal is for you to explore your options and decide how you would like to proceed.
Who Should Be Looking Into Annuities?
Retirees, pre-retirees, and even people still accumulating for a far-off retirement have decided that an annuity is suited for their situation. The most important step is to confirm that an annuity insurance product, or any other financial product considered, is in alignment with your goals and is suitable for your unique situation.
If your goals align with the ideas of keeping the money you have, growing your money without the risk of market volatility, controlling or limiting taxes, and keeping comfortable access to your money, than an annuity insurance product may be the right fit for you.
Of course, not everyone in every situation will be best served by purchasing a Fixed Indexed Annuity insurance product. That is why discussing your unique situation with us in a one-on-one scheduled appointment is crucial after learning about annuities on this website.
What Can an Annuity Do for Me?
The Quick Benefits
Fixed Indexed Annuities cannot lose money through market volatility because they are an insurance product and not an investment.
Fixed Indexed Annuities have averaged an 8.6% return over the past 14 years, outperforming the overall return of the S&P 500 (Click here to see the study in the Journal of Financial Planning).
Annuities grow tax-deferred, which means you don’t pay taxes until you access your money in the future, when your tax bracket should be lower. Many annuities provide you with the contractual option to withdraw 10% or more of your account each year without penalty. Fixed Indexed Annuities can be structured to provide a contractually guaranteed stream of income for life.
Innovation
For nearly one hundred years, Fixed Annuities have provided yields averaging between two and five percent under the terms of the Fixed Annuity contract.
Introduced in 1995, the Fixed Indexed Annuity contract provides greater flexibility and options for purchasers beyond that of the traditional Fixed Annuity contract. A Fixed Indexed Annuity gives you the option of linking the return, paid to you under the terms of the Fixed Indexed Annuity insurance product, to an index like the S&P 500. This innovation provides the qualified purchaser with an array of contractual options that simply didn’t exist before the introduction of the Fixed Indexed Annuity.
Achieve Your Goals
Everyone’s retirement situation is different and as with any financial product, including an insurance annuity product, it’s important to determine your suitability for the product given your unique circumstances and your retirement goals.
Why Are Annuities Popular?
Retirees, pre-retirees, and even people still accumulating for a far-off retirement have decided that an annuity is suited for their situation. The most important step is to confirm that an annuity insurance product, or any other financial product considered, is in alignment with your goals and is suitable for your unique situation.
If your goals align with the ideas of keeping the money you have, growing your money without the risk of market volatility, controlling or limiting taxes, and keeping comfortable access to your money, then an annuity insurance product may be the right fit for you.
Of course, not everyone in every situation will be best served by purchasing a Fixed Indexed Annuity insurance product. That is why discussing your unique situation with us in a one-on-one scheduled appointment is crucial.
Annuity Glossary
A
Accumulated Interest: Interest earnings that have accumulated inside an annuity contract and have not yet been withdrawn.
Accumulation Value: Total current value of a fixed annuity which includes all premium payments made plus accumulated interest earnings to date, less any fees or previous withdrawals, but before the application of any surrender charges.
AM Best Rating: Rating assigned by A.M. Best Rating Services to indicate their opinion of insurance company’s financial strength and ability to pay claims (graded from A++ to F).
Annual Point-to-Point: Refers to a fixed index annuity crediting method that measures the percentage change in the underlying index value between two dates, usually the beginning and the end of the annuity contract year.
Annual Reset: An indexing method used with fixed indexed annuities where the index value is reset and interest earnings, if any, are credited at the end of each contract year, creating a new index value starting point for the coming year.
Annuitant: The person whose life the annuity policy is based upon and also receives the benefits of the contract.
Annuitization: Converting an annuity contract’s value into a guaranteed income stream represented by periodic payments made over a specified period of time, usually for life.
Averaging: A crediting method that uses the average (usually monthly or daily) of an index’s value to determine interest credits rather than a point-to-point method that records the index value change between two specified dates.
B
Basis Point: A unit of measure for interest rates where one basis point is equal to 0.01%.
Beneficiary: Individual(s) or legal entity named to receive the benefits of an annuity policy upon the death of the Annuitant.
Bonus Annuity: A type of annuity where the insurance company adds a bonus amount to your annuity, usually a set percentage of the amount you put in, when you buy or add money to your contract.
C
Cap: The maximum rate of interest the annuity can earn during the index term.
Cash Refund: An immediate annuity payout option where the insurance company guarantees that the total payout will not be less than the amount paid to purchase the annuity. If the annuitant dies before receiving payments that equal the purchase price, the difference is paid to the named beneficiaries in a lump sum.
CD-type Annuity: A type of annuity where the interest rate is guaranteed in advance for a set number of years (also known as a multi-year guarantee annuity).
Comdex Rating: A ranking composite of all ratings an insurance company has received from A.M. Best, Standard & Poor’s, Moody’s and Fitch. It shows the company’s standing, on a scale of 1-100, in relation to all other companies that have been rated by the rating services. A company needs to be rated by at least two rating services to receive a COMDEX.
Contract Anniversary: The annual anniversary of the annuity contract issue date.
Contract Owner: The person or legal entity that applies for, purchases and owns an annuity contract and whose funds were used to purchase the policy.
Cost Basis: The collective total of the initial premium deposit, and any subsequent premium deposits, paid to purchase a nonqualified annuity.
D
Daily Averaging: An interest crediting method that is calculated by comparing the underlying index value on the first day of the contract year to the daily average (usually 252 trading days) of that same index at the end of the year.
Death Benefit: The benefit paid to the designated beneficiary(s) when the annuitant dies.
Deferred Annuity: Any annuity that has not yet begun to make income payments. A deferred annuity can be either fixed or variable.
Deferred Income Annuity: An annuity product that provides a guaranteed lifetime income stream beginning at a predetermined future date (also known as a Longevity Annuity).
E
Equity Indexed Annuity: Also known as a fixed indexed annuity, it uses a stock market index as the basis for determining interest credits.
Exclusion Ratio: The portion of an annuity income payment, represented as a percentage, which is considered a return of premium (cost basis) and therefore not taxed.
F
First Year Yield: The guaranteed first year yield, including applicable bonuses.
Fixed Account First Year Yield: The guaranteed first year yield, including applicable bonuses, assuming 100% of the premium deposit is allocated to the Fixed Account.
Fixed Account Rate: The current interest rate applied to premium that is allocated to the fixed account. Typically, interest rate is adjusted annually by the insurer after contract issue.
Fixed Annuity: A type of annuity where interest rates are set by the insurance company which guarantees both interest earnings and principal.
Fixed Indexed Annuity: A type of fixed annuity that uses a stock market index as the basis for determining interest credits.
Flexible Premium: Allows periodic additional premium deposits. After establishing the annuity with an initial deposit, further premium can be added to the policy at later dates.
Free Look Provision: Allows the annuity owner an opportunity to review the policy for a set period of time, typically 10 days or longer, after contract delivery to determine if they want to keep or return the policy for a full refund. Free look provisions are mandated by state insurance regulations.
G
Guarantee Period: The period of time for which the declared interest rate is guaranteed.
Guarantee Period Annual Yield: The guaranteed annual yield, including bonuses if applicable, for the initial guarantee period term, up to the first penalty free full withdrawal window.
Guaranteed Minimum Surrender Value: The minimum amount the contract owner is guaranteed to receive upon surrender of the annuity after the application of surrender charges and market value adjustments (MVA), if any.
H
Hybrid Annuity: An industry coined term to describe a fixed indexed annuity that has an optional income rider attached.
I
Immediate Annuity: Designed to provide a guaranteed income stream, typically for an individual or joint lifetime, with payments beginning in less than one year.
Income Account Value: The value used to determine the amount of guaranteed lifetime income that you will receive once activating that feature on an annuity with an attached income rider.
Income Rider: An optional benefit that can be added to some annuity contracts, usually for a fee, that is designed to help generate a higher level of guaranteed lifetime income at a future date.
Installment Refund: An immediate annuity payout option where the insurance company guarantees the total payout will not be less than the amount paid to purchase the annuity. If the annuitant dies before receiving payments that equal the purchase price, the difference is paid to the named beneficiaries in installments.
J
Joint Annuitant: The person whose life, jointly with the primary annuitant, the annuity policy is based upon; the joint annuitant and also receives the benefits of the contract.
Joint Life Annuity: An annuity payment option that provides guaranteed income payments for as long as either the annuitant or joint annuitant is living.
Joint Owner: A person (or legal entity) that applies for and buys an annuity contract jointly with another person. These parties co-own the annuity and their funds were used to purchase the policy.
L
Life Annuity: An annuity payment option that provides guaranteed income payments for as long as the annuitant lives.
Longevity Annuity: A product designed to provide a guaranteed lifetime income stream beginning at a predetermined future date (also known as a Deferred Income Annuity (DIA).
M
Margin or Spread: A specified percentage used in certain calculation methods with fixed indexed annuities to determine the amount of index-linked interest credited to the annuity.
Market Value Adjustment (MVA): An adjustment formula applied to withdrawals made in excess of penalty free amounts, or full contract surrenders, during the time in which the annuity is still subject to the surrender period.
Maturity Date: The date specified within an annuity contract at which time the owner must elect a settlement option and begin receiving payments by way of annuitizing the contract.
Minimum Premium: The minimum initial payment required to purchase an annuity or to qualify for a particular rate band. Amounts vary by product design and tax status of funds.
Monthly Averaging: An index annuity interest crediting method that is calculated by comparing the underlying index value on the first day of the contract year to the monthly average of that same index at the end of the year.
Monthly Point-to-Point: An index annuity crediting method that measures the percentage change in the underlying index value each month.
Multi-Year Guarantee Annuities: Type of fixed annuity where the interest rate is guaranteed in advance for a set number of years.
N
Non-Qualified: Non-qualified encompasses every type of fund, except those held within a tax-qualified account, such as an IRA or 401k.
P
Participation Rate: Determines what percentage of the increase in an index will be used to calculate index-linked interest credits to a fixed indexed annuity.
Penalty Free Withdrawals: The amounts specified in an annuity contract that can be withdrawn on a penalty free basis, even during the time in which the annuity is subject to early surrender charges.
Period Certain: An immediate annuity payment term where income payments are made by the insurance company for a predetermined set period of time only.
Point-to-Point: A crediting method that measures the percentage change in the underlying index value between two dates to determine the interest credit applied to the index annuity contract.
Policy: The legally binding contract issued by the insurance company that defines the terms, conditions and benefits of the annuity.
Premium: The total of the initial payment, and any subsequent payments, made to purchase an annuity, excluding earned interest.
Premium Bonus: The percentage added by the insurance company to premium payments made by the annuity owner (bonuses are frequently subject to a vesting schedule).
Premium Tax: A tax imposed by some states on certain annuity products. The amount of tax can vary depending on the type of funds used to purchase the annuity.
Principal: The collective total of the initial premium deposit, and any subsequent premium deposits, paid to purchase an annuity, excluding earned interest.
Prospectus: A legal document that must be delivered, under Securities and Exchange Commission (SEC) regulations, to the prospective buyer of a variable annuity before the actual sale, providing details about the variable annuity offering.
R
Renewal Rate: Interest rate offered by an insurance company on an in-force fixed annuity after the initial guarantee period is over.
Rollover: Moving of tax-qualified monies from one retirement plan, or IRA, to another in without any tax consequences and maintaining the tax-deferred status of the funds.
S
Single Life Annuity: A payment option that provides guaranteed income payments for as long as the sole-named annuitant is living.
Single Premium: An annuity contract established with a single lump-sum premium payment. Additional funds cannot be added after it is issued.
Single Premium Immediate Annuity (SPIA): A type of annuity that provides a guaranteed income stream, typically for an individual or joint lifetime, with payments beginning in less than one year.
Spread or Margin: A specified percentage used in certain calculation methods with fixed indexed annuities to determine the amount of index-linked interest credited to the annuity.
Surrender Charge: Penalty imposed by the insurance company for terminating (or exceeding the penalty free-withdrawal provisions) of an annuity contract during the surrender period.
Surrender Period: Period of time for which an annuity contract is subject to early surrender charges or penalties.
