Tips on choosing and shopping for an Annuity.
The basics: Think of annuities as a retirement account with air bags. Buyers invest a sum of money in a particular annuity, and in exchange, they’re guaranteed a payment for a set number of years, or for life.
They tend to be purchased by people under age 40, people nearing retirement age and professionals who want to protect their assets.
Annuities are investments that provide peace of mind for people who want to protect their lifestyle in retirement and ensure they won’t outlive their savings.
There are two main types of annuities:
* Immediate Annuity- You invest a lump sum, and the insurance company begins sending you regular payments right away. You would decide in advance whether you prefer receiving a fixed amount for life or for a certain amount of years.
* Deferred Annuity-You invest one or more sums with the insurance company years before your retirement date. During these years, your investments have a chance to grow, tax-deferred.
When you reach retirement age (at least 59 1/2), the amount of your payment will depend on the total size of your annuity.
There are three different types of deferred annuities-each with trade-offs and risks:
*Fixed Deferred Annuity-Your lump sum investments are placed in a low-risk asset portfolio and earn a guaranteed annual rate of return until retirement.
*Variable-Deferred Annuity-You invest in stock and bond funds offered by the insurance company that holds your annuity. At retirement, your account can be worth more or less than your initial investment.
*Equity-Indexed Annuity-Your investment mirrors the performance of broad stock index, such as the S&P 500. The insurance company protects against market declines by guaranteeing a minimum return on your investment.
Annuities are a great retirements-savings plan: Unlike a 401(k), IRA or SEP (Simplified Employee Pension), you can contribute as much as you wish; your investment grows on a tax-deferred basis; and you can rest easy knowing you’ll receive payments for the duration of your contract.
But annuities may not be ideal if you already have assets saved that can produce enough income for you and your spouse during retirement.
Consider an Immediate Annuity if:
*You are near retirement age.
*You haven’t saved enough in your retirement plans to provide sufficient income.
*You need steady retirement income in addition to Social Security payments.
*You worry about outliving your savings.
*You have no family to support you if your savings run out.
*You want your spouse to recieve a steady income if you precede him or her in death.
Consider a Deferred Annuity if:
*You are under age 40.
*You are a likely target for litigation by former clients, creditors or a divorcing spouse. Doctors, lawyers and now even financial and real estate professionsal are at risk.
*You want to swap out of a poorly performing annuity or Universal Life Insurance policy. Through what’s known as a 1035 exchange, the IRS allows you to transfer the cash value of one insurance product to another without triggering tax penalties.
If an annuity makes sense for your needs, here’s what you need to consider when narrowing your choice:
*Calculate the payout. How much income are you likely to receive based on the sum you plan to invest?
*Verify returns. Look at how an annuity’s investment returns are calculated.
*Add up the expenses. Find out exactly what you’ll be charged in expenses and fees.
*Explore the death benefit. What will your spouse receive if you die before deferred-annuity payments are due to begin? Consider an extra fee to boost the annuity’s death benefit.
*Size up surrender fees. What will you be charged if you choose to cancel the annuity and withdraw your savings?
Now that you know what you need to look for, get out there and shop!
How To Transform Your Savings Into An Annuity
To steer clear of an uncertain market downturn, retirement investors should consider using some of their well protected nest egg to purchase an annuity prior to retiring. By buying a slice of guaranteed lifetime income, investors could be protected from future market declines while locking in a portion of their retirement funds.
Professional Financial Advisors have lately been emphasising the importance to generate retirement income, especially in today’s tough times. Annuity sales rose 17% in 2011’s first quarter from the year-earlier period, and were also up more than 5% from the fourth quarter of last year, according to the Insured Retirement Institute, an industry trade group.
The cost and terms of an annuity can be very attractive. Be prepared to ask some of these questions that ensure proper placement of your precious money before buying.
1. Annuities are illiquid. If you change your mind about an annuity contract, there may be fees. Can you afford to leave your annuity funds untouched for a long time?
2. Are you so far away from retirement that it would be better to leave your retirement funds in the market?
3. What are the financial and tax consequences of assembling the funds needed to buy an annuity? Annuity gains are free from taxes until the product “annuitizes,” or begins generating retirement income. So, they are particularly attractive in taxable portfolios. That’s because investment gains in tax-deferred retirement accounts are already tax-exempt. However, if you need to sell taxable investments to buy an annuity, make sure the annuity still makes sense.
4. Annuities are particularly helpful when it comes to paying fixed retirement expenses such as housing, utilities, and other essentials. Does your Social Security and/or pension offer enough to pay your fixed expenses? If not, you may need another layer of guaranteed income, like an annuity,to ensure you will live comfortably.
Everyone wants and deserves to have peace of mind when they hit their “Golden Years”. What are you going to do to make sure you’re one of those people?
Start with $10K, retire a millionaire
Hoping to reach age 65 with $1 million? You can achieve your goal, but getting there requires discipline — and the earlier you start, the better.
The millionaire next door could be you.
All it takes is money and time; it always does. But what this really means is you have to save money over time, and that’s where so many of us struggle. Struggle if you must, however, finding a financial adviser or Marketing team you can trust is a great first step. Annuity’s offer choices that simply can’t go wrong. Starting young is obviously a wise choice but how many young people do you know have the funds to operate that way? Annuity’s add up fast and will benefit you at any age. Whether you’re 25,45 or 55, you’ve got to start somewhere. In order to save, you have to understand your spending and building some awareness of where you are now, where you want to be and what it takes to get there are key decisions that should be made between you and your financial institution.
Of course there will be bumps along the road — potholes, even — that challenge your resolve. The financial markets who specialize in annuity and case design are here to help. Doing your homework and finding the right “go-to guy” will take the stress off of you and be worth it in the end.
If a 25-year old with $10,000 invested $320 a month at a 7% annual compound rate of return until age 65, he or she would wind up with $1 million. That’s the power of annuity’s and is definitely possible with the right professional support.
Maybe you’ve been living paycheck to paycheck, and life has been good. You’ve got a nice house, a fancy car — but no savings. In short, you have a big hat but no cattle. The millionaire is next door, and he isn’t knocking.
This is your moment of truth. You may not become a millionaire, but you can live like someone who is on the way to becoming one. Here’s how: Cut expenses, put your money in an annuity and work longer. So, what are you waiting for?
