What type of Annuity is Right?

 

When people talk about annuities everyone either has an opinion good or bad, or the truth is most people do not have any idea what an annuity really is.

There are three main types of tax deferred annuity products, including the fixed annuity, equity indexed annuity and variable annuity. For the fixed and equity indexed annuity, your principal and a minimum rate of interest are guaranteed to ensure that you never experience a loss or reduction of your savings. They are designed to provide a higher rate of return over traditional CD and savings plan products, and come with many options you can customize depending on your retirement objectives and financial plan.

The variable annuity however is a form of securities, directly linked to the stock market in terms of growth potential and investment risk. While the variable is a form of tax deferred annuity, variables differ from the guaranteed nature of fixed and equity indexed annuities in that their value depends on the market performance of the investments held by the variable annuity you purchase. As a result, you can experience higher gains over other annuities, but your retirement savings could also be at risk of unforeseen market changes.

The tax deferred annuity is an extremely popular savings and investment plan for individuals who want to save on a tax deferred basis for many years. With a tax deferred annuity, you invest your money to earn interest on the total amount being built up, with all taxes deferred until you start taking the money out. The process of earning interest over a long period of time without any tax deductions compounds your wealth greatly compared to traditional CD and savings plans.

Investors that create a tax deferred annuity have several options in the way they fund the investment, depending on their personal objectives and circumstances. A tax deferred annuity can be funded with a single lump sum (known as “single premium”), while other options for installments are also available (known as “flexible”).

The tax deferred annuity is provided as a retirement vehicle by major insurance companies, who utilize financial planners, employers, and retirement specialists to introduce the benefits direct to individuals. The tax deferred annuity is safe, as an approved life insurance company is required to hold reserves that at all times equal the withdrawal value of your annuity policy. In addition, state law requires certain levels of surplus capital also be available to increase your protection. The legal reserve for a tax deferred annuity refers to the strict legal requirements that must be maintained by insurance companies to protect and safeguard your assets at all times.

For many working individuals, a tax deferred annuity makes up the cornerstone of a safety-first retirement plan, being the natural progression once 401k, SEP or IRA contributions are maximized. For individuals in retirement, the tax deferred annuity can be utilized to continue to defer taxes in preparation for the time when that money will be needed to supplement or provide a dedicated stream of lifetime retirement income.

Retirement Help

 

As you begin to plan your retirement, you may or may not have a good picture of how risky income planning can be. The truth is that a frightening percentage of individuals do not adequately save for retirement and if you are on the border of not having enough, or even if you think you do have enough, there is a very real chance you could come up short later in your retirement years. A retirement annuity could close the gap between what you have and what you need.

While there is no easy fix for the lack of inadequate savings, the only way to guarantee yourself a lifetime income stream that cannot be outlived is through a retirement annuity. By taking a portion of your retirement savings and purchasing an retirement income annuity, you can ensure that you will not outlive your assets. You can look at this option in two phases.

The first phase of this “income for life” model focuses on guaranteed income. In a high-interest-rate environment, a ladder of certificates of deposit with staggered maturities would work well. But in today’s low-interest-rate climate, a five-year immediate-payout annuity gives you more bang for your the buck.

Phase two focuses on conservative income-generating investments, such as a bond ladder or a deferred annuity, that can be converted to an income annuity in years six through 10. Each subsequent phase allocates a little less money and directs it toward assets that are slightly riskier. The goal is to refill the immediate-income bucket every five years.

While no single product can offer a perfect solution for the wave of baby-boomers about to retire, income annuities can be an important element to true financial security.

“Best Solution” or More of the Same…

The current economy has had financial impact on many aspects of family life including plans for retirement. No doubt, you have heard someone say, “I don’t even want to look at how much money I’ve lost in my retirement fund.”

So what retirement actions are necessary? Determine the amount of money that will be needed for retirement based on accumulated wealth, growth rate of invested dollars including workplace retirement funds; number of years between now and retirement; amount of income needed during retirement; as well as the number of years one plans to be retired.

Having an updated personal net worth statement is a good place to start this determination. 

When someone is not where they want to be in life or in their portfolio and self-aware enough to realize this, they might want to try to fix it for the better. Fixing for the better can mean a well thought out change in strategy and habits or a desperate path that relies far more on chance than is prudent.

We are in an economic situation where all measures taken previously came up short of what was expected yet the “best solution” seems to be more of the same.

Make your best estimate for how long you plan to be retired, because long term planning is still the key, even in this economy. 

Not only can the economy and having enough money be a worry but what about knowing how to make your money last over a long period of time?

Two characteristics distinguish the purchaser of an immediate annuity: desire for regular, lifelong income payments and desire to begin those payments as soon as possible.

The category of buyer that best fits this description is a retiree who wants to convert retirement savings into a regular source of income that cannot be outlived. Hence, individuals who are just retired and whose risk tolerance is heavily weighted toward security are very good candidates for immediate annuities.

Purchasing an annuity is a big decision. Online research is a good start, but prudent investors should discuss all their options and risks with an independent financial advisor.

When to Put Money Where?

 

 

 

 

 

 

Are you confused as to when is a good time for which different savings vehicle? Many of us hear all the different ways to invest and save, but the real question is when is a good time for each of them?

There is a simple rule of thumb to go by. The younger you are, the more money you should have at risk and the older you are, the more money you should have be safe. As far as who is young and who is older, you can take 100 and subtract your age. For example if you are 60 years old then you should only have 40% of your money in the riskier investments.

Now once you figure out how much money can be at risk and what amount shouldn’t. Where do you look to put the money? the money that can take on risk should be in some part in stocks in the market.  As far as safe places for the money which should not take on risk there are many options.

You can look at your bank and see what money market rates are and Certificate of Deposits rate are at. But most likely the return is not the highest you can find, sometimes barely staying up with inflation.

A fixed annuity can make sense for an older investor nearing retirement age or one who has already retired, provided he or she has additional assets that are growing faster than the rate of inflation. In this case, the retired investor could purchase the annuity as a way to protect his or her money from extreme market fluctuations.

Almost all life insurance companies sell fixed tax-deferred annuities. But they are typically sold through another division or subsidiary of the company. Life insurance companies are required by law to keep certain assets separate from others. This prevents a catastrophic event in one division from disrupting business in other divisions. For example, the money that needs to be available to pay claims in the form of death benefits is kept separate from money that is invested in equities to pay annuity distributions.

The following features are common to most fixed annuities:

• Guaranteed Rate of Return
• Tax Deferral
• Secure Principle
• Option for Lifetime Income
• Bailout Provision
• Penalty-free Withdrawal Provisions