I’ve been a financial advisor for decades, and one thing I’ve discovered is there is an almost universal misunderstanding of annuities. But at the same time, there’s a growing interest in what fixed and fixed index annuities have to offer.
Q. How do I know if an annuity is right for me?
A. It is my pleasure and my duty to advise you of retirement solutions that are suitable to your particular investment needs. As we work together, we’ll develop a comprehensive retirement strategy that takes into account all aspects of your financial situation, goals, and needs.
Q. What is an annuity?
A. When you purchase an annuity, you are creating a contract between you and an insurance company designed to meet your retirement and long-range goals. You agree to make a lump-sum payment or series of payments to fund the annuity. The insurance company agrees to make periodic payments to you beginning immediately or at some future date.
Q. Are there different types of annuities?
A. Here are two:
- Variable Annuities are at risk in the marketplace, because the insurance company puts your money in the stock market, not in their capital account. They also charge high fees.
- Fixed Annuities are guaranteed not to lose principal or locked-in gains due to market downturns. Your money is placed in the capital account of the insurance company, not in the stock market. There are generally no fees or low fees.
Q. Are all Fixed Annuities alike?
A. There are two basic types of Fixed Annuities:
- Traditional Fixed Annuities give you a specific, fixed, tax-deferred return for the term of the contract. They are essentially long term, tax-deferred CDs that usually offer higher rates than CDs.
- Fixed Index Annuities are linked to the market indexes, but they are not in the market. They are categorized as ‘fixed,’ because they are guaranteed not to lose principal and locked-in gains due to market downturns. In other words, if the market goes up,they credit your account with a percentage of what one or more of the major stock indexes have returned. If your money is in a Fixed Index Annuity and the market goes up, as it has done historically, you can make a good return on your money. (See www.indexannuity.org for the history of Fixed Index Annuities.) But if the market crashes, as it did in during the Depression, in 2000 and 2008, and may again, they guarantee your principal and locked-in gains. Gains are locked-in, usually annually or bi-annually.
Q. Can an annuity offer a life-long income?
A. Yes. A Fixed Annuity can be ‘Annuitized’. And, there are Lifetime Income Riders (Level and Increasing), as well as Family Endowment Riders.
Q. What are some of the benefits of Annuities?
A. There are many benefits, including:
- Annuities grow tax-deferred.
- A Fixed Index Annuity makes money when the market goes up, and guarantees you will not lose your principal and locked-in gains when the market goes down.
- A Fixed Index Annuity often gives you up-front bonuses on your money.
- A Fixed Index Annuity can guarantee three times your initial premium if you ever need custodial care.
- A Fixed Index Annuity can protect your heirs. An FIA can guarantee that you can take 4% out of your savings every year and still leave your spouse and heirs with more than you had in the beginning. Heirs inherit immediately. FIAs can assure you that your heirs will be able to receive lifetime payments from your IRA, equaling many times the ‘at death’ value of the IRA.
- Annuities can protect your assets from lawsuits.
- An Inflation Annuity is a Fixed Indexed Annuity that guarantees an increasing annual income each time the annual index credit is positive. Heirs inherit a lump sum.
- Annuities have no fees, unless you choose a strategy that has them.
- Annuities avoid probate.
- Annuities make changing a beneficiary, e.g., a recalcitrant child, VERY easy.
- Annuities can avoid the complexities that sometimes exist in trusts. For example, a Fixed Annuity can provide for a ‘special needs’ child or relative by simply having a check sent consistently to the recipient, without having to go through a fiduciary or trust.
- Fixed Annuities are designed to beat CDs. (But they have longer terms).
- Annuity interest is not counted in your Social Security tax determination, as interest is with CDs and “tax-free” municipal bonds. Fixed annuity income is not counted in your Provisional Income. This can reduce or eliminate income taxes on your Social Security benefits.
- Annuities are not counted as assets in determining needs-based college funding eligibility!
Does this make sense to you so far?
Do you have more questions?
Are you ready for a personalized presentation comparing your best options among well-known, well-respected carriers?
If so, please pick up the phone and give me a call.