Annuities: An investment that makes guaranteed fixed payments at regular intervals over the period of time.

An Annuity may be your answer if your looking for another way to invest or continue your retirement plan!

WHAT IS AN ANNUITY?

An Annuity is a tax-deferred savings account issued by a financial advisor at an insurance company on your behalf. You agree to pay the insurance company a single payment or a series of payments, and the insurance company agrees to pay you an income, starting immediately or at a later date, for a specified time period. While Annuities are not insurance policies, financial planners issue them from insurance companies. An Annuity is similar to a retirement plan in that you can fund it in a lump sum or a little at a time, and all capital in an Annuity grows and compounds tax-deferred until you begin making withdrawals.

Annuities used to be considered an investment for people nearing retirement. However, Annuities can be a smart investment for all ages. Remember, an Annuity can be invested in a variety of ways, offering everything from modest to fast growth. After tax advantages, there are more important reasons to invest in Annuities. Especially when you consider how flexible an Annuity is.

The following are more benefits of Annuities:

• Guaranteed income for the rest of your life.
• Guaranteed income for the rest of your spouses’ life.
• Unlimited contributions can be made.
• Higher interest-rate over other investment types.
• Long-term savings without immediate taxation.
• You have “maxed out” other investment plans and you want to save more.
• No-penalty rollovers of existing tax-deferred savings plans.
• You will only pay taxes upon withdrawal of funds.
• No probate at death.

ANNUITY TYPES

There are two basic investment types of Annuities, Variable Annuity and Fixed Annuity. If you prefer a fixed rate of return, you may opt for a fixed rate Annuity. Or, if you are interested in the growth potential of investing in the stock and bond market, you may select a variable Annuity.

Below you will find out more about each investment type:

• Fixed Annuities Variable Annuities
• Fixed Annuities offers offer guaranteed interest rate set by the insurance company for a set period of time. Fixed annuities safer.

Types:

Market Value Adjustment:

The Annuity works much like the Guaranteed Return Annuity, below, except there is no guarantee of funds if rates rise and you surrender your contract. Market Value Adjustment Annuities work like a bond and often pay more than a Guaranteed Return Annuity due to the increased short-term risk of fluctuating rates.

The Guaranteed Return:
This Annuity is a fixed Annuity that offers a guarantee that you will not receive less than 100% of your investment funds. There’s no fluctuation in the interest rate and the market can deplete your initial investment should you surrender your contract.

Index (Variation of fixed)
The “index” Annuity is a variation of the fixed Annuity. The rate of return is dependent on the S&P 500 Index. An Index Annuity is guaranteed a minimum interest rate, so it’s not possible to lose money due to fluctuating market conditions.

Variable Annuities enable you to invest into specific funds, into sub-accounts. These sub-accounts are tied to the current market’s rate.

Types:

Conservative Type:

• Money market
• Guaranteed fixed accounts
• Government bonds

Aggressive Type:

• Small cap markets funds
• Mid cap markets funds
• Large cap markets funds
• Capital appreciation
• Aggressive growth
• Emerging markets funds
• Growth markets funds

Special type:

• Living benefit Annuity

ANNUITY PURCHASE TYPES

The below information describes the two basic ways you can purchase Annuities. The amount of purchase (and payments, if so desired) will be dependent on the following:

Single Payment Flexible Payment
With this purchase type, you’ll make a one lump-sum payment to purchase a single-premium Annuity. If you want to contribute more money at a later date, you will have to purchase another Annuity.

With this purchase type, you’ll make ongoing contributions to a flexible-payment Annuity. You can contribute money at regular or irregular intervals anytime you want.

ANNUITY PAYOUT TYPE

At time of purchase you may elect one of two ways to receive funds from your Annuity. Generally, once you begin receiving Annuity payments, you cannot change the method or frequency of the payments.

Two basic Payout types:

Immediate Pay Out:
With this type of Annuity Payout type, you begin to receive payments immediately upon investing funds. This is for investors that need immediate income from their Annuity. You pay income taxes only as you receive your payments.

Deferred Pay Out:
With this type of Annuity Payout type, you receive payments starting at retirement. You can receive your funds in one lump sum, take it as needed, or receive it in a steady stream of periodic payments. These funds grow tax-deferred until you’re ready to begin receiving funds.

Other Options:

Liquidity options.
Withdrawing Interest: Most Annuities allow you to withdraw a certain portion of your interest earnings without a penalty (although any withdrawal from an Annuity may be subject to taxes). Withdrawals from Annuities will affect both the account value and death benefit.
Death Benefit
Another important feature of some Annuities is the death benefit provision, a feature inherent in most every Annuity in one degree or another. The Annuity issuer guarantees at a minimum that upon your death your total premiums are paid to your beneficiaries.

SAVING OPTIONS

Where will the paycheck come from in retirement?
You know the source of your income today. But where will the paycheck come from in retirement? The money you live on in retirement will probably come from your pension, Social Security, personal savings and part-time work. Only one-third of Americans are saving what they’ll need to reach their retirement savings goal. If you’re relying solely on your work pension to fund your retirement years, get ready to take a pay cut. Most pensions weren’t designed to replace 100% of your working income. Today it’s up to you to make sure you’re putting enough away. So start saving today so the money will be there when you need it.

How much will you need for retirement?
Experts suggest you will need approximately 65 – 85% of your current income to maintain your present lifestyle in retirement. If you want to increase your standard of living in retirement, you may even need more. While some expenses in retirement may drop such as job-related expenses and paying taxes, other expenses may increase.

Your basic living expenses should stay the about the same.
You will still need transportation, to eat, pay utilities and maintain your home. But health care costs and medical expenses, on the other hand, will most likely increase.

What happens if you withdrawal funds early?
Keep in mind that an Annuity is a long-term retirement plan. There are charges or fees if you take your money out before a specified period of time. However, many fixed Annuities allow you to take a 10% of your money without being charged for it.

Save at tax time!
Any earnings from your Annuity grow on a tax-deferred basis, which means that you don’t have to pay any taxes on your Annuity earnings, until you withdraw funds.

Charitable Annuity!
This type of Annuity option allows you to provide for your own financial security in your lifetime and sets up a future gift to a chosen charitable organization upon your death. This Annuity option allows you to place your assets in trust. Trust assets can provide a flow of cash to you or your named beneficiary for a specific amount of time. After this, the remaining trust assets go to the charitable organization you requested. There will be no taxes because the trust is not part of your estate.

CHARITABLE ANNUITY

The two types of charitable accounts are:

Annuity trust: This type allows a fixed dollar percentage amount of funds from the trust assets to be distributed to the donors year after year. Any increase/decrease in the value of the trust does not affect the payments.

Unitrust: This type allows a set or fixed percentage of funds from the trust assets to be distributed to the donors. If the value of the assets in the trust increases/decreases, the amount of income will change since the same fixed percentage amount is paid to the donor.

RISKS AND ANNUITIES

The quantifiable likelihood of loss or less-than-expected Return.

• Tax risk: You will probably be in a lower tax bracket when you retire and begin receiving your Annuity income, but there is no guarantee of it. By the time you retire, tax rates may have risen, saddling you with a higher tax bill than you would have paid had you taken your investment income earlier.
• Inflation risk: The main risk from inflation is the danger that it will reduce your purchasing power and the returns from your investments. If your savings and investments are failing to outpace inflation, you may wish to consider investing in growth-oriented alternatives such as stocks, stock mutual funds, variable annuities, or other vehicles.
• Market risk: When a market experiences a downturn, it tends to pull most of its securities down with it. Afterward, the affected securities will recover at rates more closely related to their fundamental strength. Market risk affects almost all types of investments, including stocks, bonds, real estate, and others. Historically, long-term investing has been a way to minimize the effects of market risk.
• Company risk: Your Annuity is only as good as the insurance company issuing it. Though some states have guarantee funds to reimburse policyholders of failed insurance companies, it makes sense to buy from companies with strong financial ratings from one or more of the major ratings companies.
• Economic Risk: When the economy experiences a downturn, the earnings capabilities of most firms are threatened. While some industries and companies adjust to downturns in the economy very well, others — particularly large industrial firms — take longer to react.
• Specific Risk: Events may occur that only affect a specific company or industry. For example, the death of a young company’s president may cause the value of the company’s stock to drop. It’s almost impossible to pinpoint all these influences, but diversifying your investments will help manage the effects of specific risks.
• Liquidity risk: Deferred Annuities are designed to be long-term investments. Once you invest in them, you should count on not having to use that money until you reach age 59 1/2. If you withdraw your money before then, you may incur a surrender charge from the insurance company (except for withdrawals of limited amounts) and a tax penalty of 10% levied by the IRS. In addition, you will have to pay income tax on any profit you may have earned up to that point.

FEES AND CHARGES

Penalties for early withdrawal, can start at 5% to 8% and decline to zero over a period of time, usually five or six years. Some surrender periods last as long as eight years. But many variable annuities are sold with no surrender charges.

Fees on tax-deferred annuity accounts can be large. On fixed-rate annuities, the fees work to reduce the yields. So compare yields before buying. Also make sure that the “guarantee period” – the time the rate is promised – matches the surrender period. That way you won’t get stuck with an annuity that has dropped its rate, while you still would pay surrender charges to get out. Fees on variable annuities can run 2% a year or more. These include the fund management fees and the M&E (mortality and expenses) charges. The latter pays for a death benefit — either your original investment, or a higher value set under the contract terms — and other expenses, including marketing and commissions.

To learn more, fill out our online Annuity rate quote forms! Or you can fill out the form on this site and receive a call from a certified financial planner to help you with your needs, free and with no obligation.

FINDING A FINANCIAL ADVISOR
A financial advisor can ensure you’re saving enough to meet all your immediate and retirement needs. Find out what’s best for you and your retirement goals! Learn more about the different asset allocation types, explore the areas above and fill out our on-line form to find a certified financial advisor in your area.