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Annuity Benefits

Annuity BenefitsWhen writing and speaking about annuities, I sometimes get caught up in products and contract specifics and need to zoom out to the big picture now and again.

Lets take a moment to look at the highest level view of annuities, where you really have just two types of benefits.  These are either Lifetime Income, or Fixed Term, solutions.

Fixed Term Options

Fixed term annuities, like Secondary Market Annuities,  Fixed Annuities, and Indexed Annuities, offer a known length of  term.  SMA’s and FA’s will also have a fixed appreciation rate.

Payouts from any of these products can either be lump sum, or income.  You can find fixed appreciation, fixed term lump sum payout annuities (SMA Lump Sums are highest yield), or you can find fixed appreciation, fixed term income streams that payout for a defined period of time.  These are SMA immediate and deferred income.

Fixed annuities and Indexed annuities also offer these defined lengths of time, and they offer additional benefits of some liquidity and surrender value, which SMA’s do not have.

With a fixed appreciation rate you have the ultimate in guarantees.  Put in X today, and you know your will get Y out in the future. Period.  This can be hugely rewarding and there are excellent yield opportunities in this avenue.

Lifetime Options:

Immediate Annuities simply trade assets for income- a one way ‘annuitization’ path.  This can be very lucrative, but is a hard mental leap to give up control of assets.

If you’re seeking to maintain some level of control over your assets, or want the potential to leave an inheritance, you will need to consider annuities that offer an investment account as well as a potential income account.

The best lifetime income with account value offering today is the Hybrid Annuity.  This is an index annuity with a lifetime income rider that can be turned on in the future.  This provides you with the potential for appreciation in the markets, no risk of loss or downside, and lifetime income protection, all in one product.

Give us a call today if any of these types of annuities and benefits suit your situation.  800-438-5121

Appreciation Rate:

In the fixed term section, you saw that many fixed term lump sum and fixed term income cases have a fixed appreciation rate. But what about the appreciation rate in other kinds of annuities?

If you are leaning towards lifetime income annuities that offer both the investment account and the income payout, the next big division to consider is the appreciation method that suits you.

Variable Annuities With Lifetime Income grow and decline with the markets.  These are NOT a great option for safety, and furthermore, many carriers have scaled back on variable annuity offerings in recent years.

By contrast, Fixed Index Annuities with Lifetime Income Riders grow based on a market index, such as the S+P 500, with no risk of loss.  These are sometimes known also as Hybrid Annuities.

It’s important to keep in mind here, however, that the primary benefit you are buying is the lifetime income.  The investment should have performance, but they are an added benefit above and beyond the primary benefit of the lifetime income insurance.

Summary:

It’s critical to know the benefits you seek when considering annuities.  It’s easy to move from seminar to free lunch to product marketing flyer and get quite confused by specific product terms and riders and conditions.

Save yourself the confusion by letting us help you focus on your goals first.  Once we identify the types of annuities that accomplish your goals, you can buy with confidence.  We can help- give us a call.

1-800-438-5121

Straight Talk on Fixed Index Annuities

Straight Talk on Fixed Index Annuities

Few products generate as much confusion and controversy as fixed index annuities, both pro and con. We’re often asked if these products are any good.
Want the Straight Talk? Money managers dislike fixed index annuities because they lose management assets and many insurance agents simply don’t do a good enough job of explaining how the product really works. This is precisely why opinions about fixed index annuities are so polarizing. But that’s just what they are, opinions. Straight talk is based in fact and cannot be disproven!

Fixed Index Annuities Summarized:

Fixed index annuities are nothing more than fixed annuities with a different means of crediting interest to the account. Fundamentally, fixed index annuities link the appreciation rate of the annuity account balance to a stock market index. In addition, the principle balance is guaranteed so you can essentially make but never lose money. In return for guaranteed protection, the potential growth only works out to a portion of the overall index gain. The basics are simple but a few moving parts gum up the works and that’s where opponents attack.

Critics will call fixed index annuities a raw deal because policy owners are not given full market appreciation and dividends are not included in the interest crediting. If that were true it would seem that insurance companies are stealing gains from the consumer. Such a short-sighted analysis only shows that the claimant understands little of how index annuities work.

You see, because the assets are not directly invested in the market index, no one receives full appreciation and dividends, not even the insurance company. Assets are actually placed in the company’s general account consisting mostly of investment grade corporate bonds and further backed by large reserves that each company is required to hold. It’s a simple risk/reward calculation. If you want principle guarantees, don’t expect the same returns as you’d get in the open market.

Another common misperception is that all index annuities have long surrender schedules approaching 15 years. In reality, surrender terms for most index annuity contracts are no different than those of variable and fixed annuities, ranging from three to ten years. Before anyone criticizes any surrender period they should first acknowledge the basis for such restrictions. If an insurance company has to buy a long-term bond to back any specific product, the company will incur a loss if the contract is cancelled early due to selling bonds or other investment instruments under less than favorable conditions.

Truthfully, fixed index annuities have a solid value proposition in comparison to other investments, no matter the risk factor involved. I too was a major skeptic at first until I took the time to understand the product. Compared to other investment strategies like futures, derivatives, hedge funds and options, fixed index annuities are not at all complicated.

Now to what really matters… are fixed index annuities a good place to put money? All else matters little if the product can offer decent returns. It just so happens that in 2009 the Wharton Financial Institutions Center for Personal Finance completed a study comparing actual index annuities contracts to alternative portfolios of stocks and bonds. Click here to see what they found. The study showed that index annuities were able to produce respectable returns when the market was strong and limited losses during market downturns. Isn’t that exactly what they are supposed to do?
There are a few specific things that every consumer must understand before purchasing a fixed index annuity. Several of the pages on this site dig into the particulars so be sure to poke around and arm yourself with all the information you can before you call.

Most importantly, there are a couple of valuable reports available with a free subscription to Annuity Straight Talk. The Fixed Index Annuity Report is the most complete resource for understanding how the fixed index annuities work,  and the GLWB Report talks about guaranteed lifetime income riders that can be attached to various fixed index annuities for additional retirement income options.

Annuity Benefits and Riders

Generally speaking, Fixed Annuities and Variable Annuities offer add-on Annuity Benefits and Options.  These can add significant cost to your annuity.  The following are the key riders to watch out for…

With added benefits come added expenses so be selective when you choose extra features and definitely do your homework so you know exactly what you are paying for.

We have put together a list of the most common riders available to consumers to give you an idea of what’s out there. You will likely come across other options and some that are specific to one contract.

We seek to teach you to be critical and objective so you can do a good job of evaluating your needs for any additional contract provisions that are being pitched. If you need some help with analysis, please Contact Us and we’ll be happy to walk through any rider or particular contract.

Here is a list of common riders you will encounter in your search for the proper annuity.

  • GMIB – Guaranteed minimum income benefits guarantee a base income upon annuitization for a specified period
  • GMDB – Guaranteed minimum death benefits are designed to protect the beneficiaries of the purchaser by paying a death benefit equal to the initial investment regardless of market conditions in the event of the purchasers death.
  • GLWB – Guaranteed lifetime withdrawal benefits give a minimum payment for the lifetime of the purchaser based on the value of the initial investment and a stated guaranteed minimum investment return.
  • GMAB – Guaranteed minimum accumulation benefits offer a minimum return of principal to the purchaser equal to the initial investment or the highest account value reached during accumulation depending on contract specifics.

These riders can be added to annuities for an additional cost, usually in the range of .5-.75% of the annual guaranteed yield. The costs vary from company to company.

This additional expense adds even more to the already higher than average cost of variable annuities so make sure you understand the product thoroughly before you invest.

Even after you learn the Decision Tools to make your own decisions, expert advice is essential.

Contact Us and we can help explain the benefits and disadvantages of each of these annuity benefits.

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Pros and Cons of Fixed Annuities

The Pros and Cons of Fixed Annuities are the easiest of all annuity products to understand.

1) You invest money with the insurance company and they pay you interest.

2) When the investment term has expired, you can elect to have your account balance paid out as a stream of income or you can take the entire lump sum and go elsewhere.

That’s as simple as I can put it. Of course there are various pros and cons to understand to determine if a fixed annuity is right for you.

Pros and Cons of Fixed Annuities: Pros

The benefits of fixed annuities are quite clear…

Guaranteed Interest- You can lock your interest rate for the life of the contract with a CD-type annuity or choose a floating rate that moves up or down according to normal interest rate fluctuations. Either way, your interest is guaranteed to not go below a certain level as specified by the contract.

Tax Deferral- Accumulation within the contract happens on a tax-deferred basis so you have the benefit of additional compounding that gives an effective yield that outpaces other safe cash investments.

Free Withdrawals- Every contract comes with a provision that allows you to take anywhere from 10-15% of the account balance annually without penalty. This can be used to meet minimum distribution requirements in retirement accounts or for discretionary expenses. The money is yours so do whatever you want.

Ultimate Safety- Insurance companies are much more conservatively capitalized than banks so the guarantees mean more, in my opinion. The insurance industry has a much lower default rate than the banking industry and all states have an insurance guaranty fund that matches, and in some states, exceeds insurance provided to banks via the FDIC.

Pros and Cons of Fixed Annuities: Cons

The disadvantages of fixed annuities are equally as clear…

Surrender Periods- Fixed annuity contracts require you to keep your money invested for a specified period of time. In exchange for your commitment to keep your money with the company, there is no up-front sales charge for your purchase. The investment term is known as the surrender period and there is a back-end charge if you fail to fulfill your end of the deal. The surrender period must work within your time horizon. If you need more money than is available via free withdrawal before the end of the contract, this product is not for you.

Conservative Growth- Fixed annuities will never make you rich. They are meant for asset preservation and safe appreciation. These products work just before or during retirement because of safety; don’t expect rapid growth. If you’re a golfer then you know to use a driver on the fairway and a putter on the green. Consider this the best putter money can buy, but keep it in your bag until the time is right.

 Pros and Cons of Fixed Annuities: Summary

For now, that’s about all I can say about fixed annuities. Proper placement in a retirement requires expert advice and analysis. In addition, there are thousands of available products and even more agents selling them.

That’s why you need The Retirement Income The Right Way Reportso you can understand the specifics of fixed annuities in detail. This valuable creation is available for free download from this website. From this report, you’ll learn how to tell the difference between a good product, company or agent and a bad one, and can weigh the pros and cons of fixed annuities for yourself.  Simply enter your name and email in the form below.

Pros and Cons of Fixed Annuities This product is the easiest of all annuity products to understand.  You invest money with the insurance company and they pay you interest.  When the investment term has expired, you can elect to have your account balance paid out as a stream of income or you can take the entire lump sum and go elsewhere.  That’s as simple as I can put it.  Of course it does get more complicated but that’s why I did so much work to give members of this site all the tools they’ll need to make a good decision. The benefits of fixed annuities are quite clear… Guaranteed Interest- You can lock your interest rate for the life of the contract with a CD-type annuity or choose a floating rate that moves up or down according to normal interest rate fluctuations.  Either way, your interest is guaranteed to not go below a certain level as specified by the contract. Tax Deferral- Accumulation within the contract happens on a tax-deferred basis so you have the benefit of additional compounding that gives an effective yield that outpaces other safe cash investments. Free Withdrawals- Every contract comes with a provision that allows you to take anywhere from 10-15% of the account balance annually without penalty.  This can be used to meet minimum distribution requirements in retirement accounts or for discretionary expenses.  The money is yours so do whatever you want. Ultimate Safety- Insurance companies are much more conservatively capitalized than banks so the guarantees mean more, in my opinion.  The insurance industry has a much lower default rate than the banking industry and all states have an insurance guaranty fund that matches, and in some states, exceeds insurance provided to banks via the FDIC. The disadvantages of fixed annuities are equally as clear… Surrender Periods- Fixed annuity contracts require you to keep your money invested for a specified period of time.  In exchange for your commitment to keep your money with the company, there is no up-front sales charge for your purchase.  The investment term is known as the surrender period and there is a back-end charge if you fail to fulfill your end of the deal.  The surrender period must work within your time horizon.  If you need more money than is available via free withdrawal before the end of the contract, this product is not for you. Conservative Growth- Fixed annuities will never make you rich.  They are meant for asset preservation and safe appreciation.  These products work just before or during retirement because of safety; don’t expect rapid growth.  If you’re a golfer then you know to use a driver on the fairway and a putter on the green.  Consider this the best putter money can buy, but keep it in your bag until the time is right. For now, that’s all I can say about fixed annuities.  Proper placement in a retirement requires expert advice and analysis.  In addition, there are thousands of available products and even more greedy agents selling them.  That’s why you need The Annuity Report so you can understand the specifics of fixed annuities in detail.  This valuable creation of mine is available for download with a free membership to this website.  From this report, you’ll learn how to tell the difference between a good product, company or agent and a bad one.

Fixed Annuity

A Fixed Annuity is designed for long term investors seeking refuge from the turmoil of the market.

A Fixed Annuity offers a guaranteed minimum rate of return, for a stated period of time. The return is guaranteed and backed by the Corporate Creditof the company issuing the contract.  If a fixed annuity is of interest, we offer essential tools in The Annuity Report for picking only the best Fixed Annuity coverage and products. It is available for free to members simply by signing up.

How Do Fixed Annuities Work?

When you buy a fixed annuity contract, you give the life insurance company your money, and they invest in a large pool of low-risk assets.  They guarantee that your investment amount will grow by a fixed amount, (fixed annuity rates) and contractually commit to pay you a stream of income for a specified period of time- this could be a lump sum, or over a number of years, a lifetime, or in a joint and survivor annuity, two lives.

Fixed Annuities are safe, secure investments and are generally straightforward contracts that are readable in plain English.  A Variable Annuity , by contrast, shifts both the potential for higher gain AND the associated risk of LOSS onto you, the investor.  Variable annuity contracts are generally more complicated, more expensive, and have more unknowns than fixed annuities.

The premium amount invested in the fixed annuity contract may be used in the future to purchase an income stream immediately (known as an Immediate Annuity ) or the premium may grow tax deferred prior to the start of the income payments.  This is a Deferred Annuity, and the process of converting a pool of capital in a deferred annuity into an income stream is known as annuitization.

Fixed Annuities: Tax Deferred

Because of the laws that govern insurance companies, you benefit from tax deferred growth and compound interest.  This pooled, guaranteed, tax deferred, long term approach gives the annuity owner a higher rate of return than CD’s, and the risk of loss is shifted from you to the insurance company.   There are two phases of tax deferral in a fixed annuity:

  • The first phase is the accumulation phase- your principal investment grows in a tax deferred, compounding structure without taxation.
  • The second, optional phase is the payout or annuitization phase, whereby the accumulated account balance may be paid in a lump sum or converted into a monthly fixed income and paid on a guaranteed basis over a lifetime or set number of payments.  For many fixed annuities, this is an optional phase and you should preserve your options in any long term investment.

Fixed Annuity Costs:

Fixed Annuities also have relatively low costs compared to variable annuities.  Fixed annuities are relatively high yield low risk investments. Here’s the Tradeoff-  While a fixed Annuity provides a balance of return and appreciation that is superior, over the long term, when you compare Annuity Vs. CD’s or other cash equivalents, you do give up some liquidity in exchange.

In addition to our pros and cons of fixed annuities page, here are some of the tax-deferred benefits of a fixed annuity:

  • A Tax-deferred fixed annuity lets you defer all tax on earnings and principal into the future, providing exceptional compounded growth.
  • A tax deferred fixed annuity is an efficient retirement savings vehicle, and is a safe investment that protects both yield, and principal.

Fixed Annuity Options and Riders can specify a wide array of living benefits and death benefits.  Please be sure to read each section to better understand, or simply contact us to find the right fixed annuity for you.

Many people own fixed annuities that they no longer want.  You can sell annuity payments and find a structured settlement buyer fro many resources on-line. Also, some fixed annuity contracts may have yields, exclusions, or other clauses that are no longer wanted, or are not competitive. The balance of an annuity account, including principal and interest and deferred tax, may be exchanged into a new annuity without tax, thru and IRS section 1035 tax free exchange.  Please Contact Us for more information on this process.