Annuity: Fixed, Variable, Equity-based Annuity: Deferred, Immediate Annuity

Annuities are not a new concept, although they have become more complex over time. The first annuities were documented in America during the mid-eighteenth century by Pennsylvanian ministers, and it was not until the early twentieth century when they became available for purchase by the general public.

WHAT IS AN ANNUITY? HOW CAN YOU BENEFIT FROM AN ANNUITY?

So, what is an annuity, and how can you benefit? A simple answer is that an annuity is an agreement between you and your insurance company. Annuities can only be sold by agents specifically licensed to do so, and each insurance company is regulated by individual state insurance commissions. Your insurance agent must possess a life insurance license as well as a license from the National Association of Securities Dealers (NASD) or the Securities and Exchange Commission (SEC).

If your insurance company goes bankrupt, other licensed companies in the state are required to honor your contract. The terms of an annuity are that you will pay a sum of money to the insurer (either a lump sum or series of payments) and they will make scheduled payments to you immediately or delay payments until after a certain period of time.

Unlike your 401(k), annuities grow tax-deferred and you will not pay any taxes to the Internal Revenue Service (IRS) until you begin withdrawing funds from your annuity. Unlike other savings options through a bank which may calculate and charge yearly taxes on your interest, in a tax-deferred annuity your taxes are based only on the final accumulation of your annuity at the time of withdrawal.

ANNUITY TYPES: FIXED ANNUITY, VARIABLE ANNUITY, EQUITY-BASED ANNUITY

In addition to deciding when you will receive your money from an annuity, you can also choose between a fixed and a variable annuity. A fixed annuity guarantees a minimum interest rate while your annuity accumulates, and guarantees equal check amounts when you withdraw from the annuity.

A variable annuity allows you different investment options for your funds, with a mutual fund as the most common choice. A variable annuity offers no guarantee to payout amounts, and your income from this annuity will fluctuate depending on the investment vehicle you chose. On occasion you may be offered an equity-based annuity which determines your interest rate based on an equity index such as the S&P 500.

CHOOSING BETWEEN A DEFERRED ANNUITY AND IMMEDIATE ANNUITY PLAN

Deciding between a deferred and an immediate annuity is a matter of personal preference. If you prefer to save for a long-term goal such as retirement, and have no immediate need for the money, you should consider a deferred annuity. It is important to remember that if you choose this type of annuity there are penalties for early withdrawal. The IRS imposes a standard ten percent penalty, in addition to income tax on accrued funds, if you withdraw money before the age of 59 . Your insurer may also charge you surrender fees for early withdrawal.

3 METHODS FOR REQUESTING PAYMENT FOR DEFERRED ANNUITY

If you wait until retirement to withdraw money, there are three methods for requesting payment from a deferred annuity. You can:

1) Request a lump sum payment or

2) Take out money only when you need it or

3) Annuitize and receive a set dollar amount every month for as long as you live

Most people choose to annuitize because it also spreads out the required income tax payments. If you die before withdrawing from the annuity your beneficiaries are entitled to receive the balance of your annuity by these methods as well, although if they choose a lump sum they will be charged all the tax on your accrued interest at once.

IMMEDIATE ANNUITY IF CLOSE TO RETIREMENT

If you are close to retirement, or already retired, an immediate annuity is a wiser financial choice. Immediate annuities must be purchased with a lump sum since payments will usually begin within one month of purchase. When you purchase an immediate annuity you are guaranteeing a steady income for the rest of your life, or for a predetermined time period. When you receive payments from an immediate annuity you are only taxed on the earnings from your initial investment. The part of your check that is the principal is not taxable.

3 MAIN OPTIONS FOR WHEN YOU RECEIVE AN ANNUITY PAYMENT

There are three main options to choose from when receiving an annuity payment.

1) The first is Income for Life which guarantees you a set income for the duration of your life, but payments will cease upon your death. This option is risky since you don’t know exactly when you will die. Should you die before your annuity has been completely paid out, the insurance company, and not your beneficiaries, will receive the remainder of the annuity funds.

2) The second payout option is Income for Life with a Guaranteed Period. This option is more appealing because it provides the same coverage as the first option, but if you die before the predetermined guarantee period expires, your beneficiaries will continue to receive payments until the guarantee period ends.

3) A third option is known as the Joint and Survivor option. This option guarantees payment to you and another person, usually a spouse, until both of you dies. Annuity payout options are flexible and any of these options can be combined to fit your individual needs.

DOWNSIDES AND CONS TO AN ANNUITY

Annuities may also be used to fund your 401(k), 403(b), and Individual Retirement (IRA), although it is not generally advised to use your annuity for this purpose. The two downsides of greatest concern are a contribution limitation, and the federal government requirement for you to begin receiving minimum payments by age 70 . Additionally, once you have used your annuity to finance your 401(k), for example, you will incur a ten percent penalty for early withdrawal if you take money before you reach age 59 and there are few exceptions to paying this penalty. Once you begin receiving annuity payments you cannot change your mind, and you will continue to receive payments for the predetermined time frame established during the accumulation phase. For more articles like this, bookmark http://annutiesimmediate.com

By: Rocco Beatrice

Life insurance, in one shape or another, has been around for centuries, and believe it or not, the first polices were crafted way back by the Chinese.

In the mid nineteenth century, life insurance polices emerged in the United States, slowly influencing Europe and South Africa towards the last quarter of the nineteen hundreds.

When life insurance first hit the scene, it was quite rare to know any family who had any form of life insurance. If you think people are skeptical now about life insurance, you should have seen them 100 years ago. But as people learned more about the benefits, life insurance slowly built up steam.

By the twentieth century, insurance had started to grow into a demand. People wanted to get coverage, however there weren’t enough staff members to assist the demand. The offices were flooded and the insurance agents overwhelmed.

Insurance brokers became the future. They traveled to people’s homes and discussed policies. They offered advice on what policy would work the best. Soon insurance brokers were regarded in the same class as doctors, lawyers, and post office workers.

The public loved the accessibility and friendliness of brokers. Insurance sales went through the roof. Customers and insurance companies alike loved what brokers were doing for their personal business.

An insurance broker would never pass up the opportunity to discuss life insurance with an interested person. They would highlight the advantages and obligations of each policy.

Brokers are very knowledgeable in the area of insurance. They have spent time studying and receiving formal training. They understand about everything you need to know about insurance. They provide objective advice on policies and which one suits you best.

Because of their vast knowledge, brokers often become a part of a family. The father or mother, whoever handles the insurance duties forms a close bond with the broker. They discuss personal issues and concerns and trust the broker to handle their insurance with care.

However, brokers have “broken down” in a small way. The internet is taking the insurance industry for good. It’s definitely the way of the future. Getting quotes and receiving insights and tips is much easier online than it is with a broker. Unfortunately these friendly little men and women are no longer needed like they use to. A lot of brokers are realizing that, and jumping ship to the internet where they can provide their insights there. For more articles like this, bookmark www.AnnuitiesImmediate.com

Author Graham McKenzie

Annuities Immediate presents this reminder to ensure that you are getting the most for your money in life insurance coverage.  This is a great time to meet with your life insurance professional and re-evaluate your life insurance plan.  This is also the time to discuss how annuities may be a great investment in your future and your retirement.

Getting a more affordable life insurance coverage doesn’t take too much. However, to get the lowest possible rates, you are required to make tangible changes in your mode of living. Are you ready to find out these issues? Let’s see them.
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Annuities Immediate presents the following article from The Wall Street Journal, written by Tom Lauricella regarding Immediate Annuities.  Immediate Annuities can be a vital part of a retirement planning strategy, a guaranteed income if you will.   Discuss Immediate Annuities with your financial planning professional or a life insurance professional for more information. 

Tough times in the markets are renewing interest in an old, reliable investment for retirement: immediate annuities.

These insurance products convert your cash into a stream of income that can be guaranteed to last the rest of your life. With many retirees staring at double-digit losses on their portfolios, that kind of reassurance is attractive.

Unlike some annuities that are complicated and expensive, immediate annuities are usually fairly straightforward. However, comparison shopping among insurers is essential because their payouts vary.

An immediate annuity can function just like a pension, producing a predictable payout. As the "immediate" part of the name suggests, the distributions start shortly after the money is invested. The trade-off with an annuity is that in exchange for that guaranteed payout, an investor gives up control of the money.

Payouts largely depend on an investor’s age — the older the investor, the bigger the checks — and on the level of interest rates. These annuities are worth considering for retirees who tap their portfolios to pay day-to-day expenses and stand a chance of using up their savings.

‘Shifting the Risk’

"You’re shifting the risk that you’ll outlive your money over to the insurance company," says Scott Stolz of Raymond James Financial.

If you’re relying on your portfolio for living expenses, financial planners typically suggest withdrawing no more than 4% a year, to limit the risk of outliving your funds; in contrast, with an annuity, you’ll get a bigger starting payout.

For example, an immediate annuity offered by Vanguard Group would convert a $100,000 investment from a 65-year old couple in Pennsylvania into $604.69 a month for life. (This policy comes with 100% joint survivorship, which means that when one spouse dies, the survivor continues to receive the full payout. It’s possible to get higher payouts for a lower survivor percentage.)

How much to annuitize?

One strategy is to get a big enough check to cover essential expenses. Mr. Stolz suggests waiting a year or so into retirement to be sure of how much money is needed on a continuing basis.

One problem with getting a fixed payout from an immediate annuity is that over the two or three decades that a retiree may live, inflation can eat into the value of that money. It takes more than $1,700 to buy today what it cost $1,000 to buy in 1989.

Inflation Protection

You can insure against that erosion of spending power by using an annuity that adjusts to inflation. This feature comes with a cost, however. The same Vanguard annuity with an inflation-adjustment rider pays out $151 less per month initially, $453.49.

That may sound like a big difference, but inflation could more than reverse that gap over the course of retirement. If the consumer-price index rises 3% a year, the monthly payout on that inflation-adjusted annuity would hit $609 in 10 years — matching the quote on the non-inflation-adjusted annuity — and reach $818 in 20 years.

Paula Hogan, a financial adviser in Milwaukee, notes that the current environment, in which the inflation rate is declining, raises an additional issue: Some inflation-adjusted annuities, such as Vanguard’s, can lower payments if consumer prices fall and then increase them again if prices subsequently rise.

Add Annuities Over Time

As an alternative way to contend with the inflation challenge, Ms. Hogan recommends some clients annuitize portions of their portfolio over time. That allows them to increase their income stream as needed, as well as to diversify among different insurers.

How much do payouts vary among insurers? A recent sampling of eight major insurers done for Encore by Hueler Cos. — a firm that has an online annuity quote service for advisers — found a difference of $108 between the highest and lowest payouts on a $100,000 annuity for a 65-year-old couple.

"I can ask 10 companies for the same exact type of annuity and get 10 different quotes," says Kelli Hueler, chief executive of the firm.

Annuities Immediate presents an article that may hit home for many of us.  We have wonderful marriages and relationships, but seldom have "that talk".  What I mean is that talk where you sit down and go line by line through a working household budget, you go through each investment in detail together, you plan for your retirement as a couple and each of you know the plan inside and out.

Instead, many of us assume that the other is doing the right thing with the money that you have to invest.  Or, you have assumed that if your 401K was doing well, your wife’s was also.  Maybe you were the one who went to meet with the life insurance agent while your spouse left the decision to you.  All of that should end today.  Have the conversation, make these decisions hand in hand, meet with an insurance professional together and ensure that you each know your plan inside and out.  That is the best way to plan a retirement, with your partner at your side. 

Conversation Starters… You need to talk. You need to talk money. You know it. But what you don’t know is how to bring it up! How can you get your partner to listen to you and open up in turn? Here are a few tips not only on how to get a conversation started, but to also keep it going!
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Annuities Immediate presents the following review of whether or not financial security is a myth.  For many savvy investors, they know that financial security is a bit like the race between the hare and the turtle.  Many investors in the past have been much like the hare, looking for the fast finish with big, risky investments.  Some of them got lucky and crossed the finish line, however, the race is littered with so many more hares that crashed and burned with those "get rich quick" and high risk investments.

Instead, many investors finish the race like the turtle.  Slowly and methodically they found sound investments, maybe not with the huge paydays like the riskier ones.  However, by taking their time, finding the investments that made sense, and utilizing annuities in their financial planning, they finished the race to retirement with a nest egg that they could rely upon.  Read on…

Financial security is a myth. There are methods to build wealth but they are not quick schemes. It takes long study and hard work to achieve success. Here are some suggestions on how to get started.
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Annuities Immediate presents the following advice on how to best structure your estate plan.  Does your plan include annuities?  Consult a life insurance professional to discuss your estate plan and how annuities can be a part of your retirement and estate planning.

Estate planning is about more than taxes. Your estate plan defines your legacy. It dictates the what, to whom, the when and how your assets and other cherished possessions are handled.
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Annuities Immediate presents the following thoughts and information on retirement planning.  Consult with a life insurance professional to investigate how annuities can be a key part of your retirement plans.  There are many different kinds of annuities, consult the tabs at the top of our site for an overview.  The key to a retirement plan in this day and age is sound investing, leveraging risk and never having all of your eggs in one basket.

Obviously, you plan on retiring at some point. The question is in what manner do you wish to retire: forced or planned? By making that decision early on, you can plan accordingly.
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Annuities Immediate presents the following article about how annuities can and should be a part of your retirement planning.   I, too, want that lazy Monday morning with my feet propped up on my patio facing the beach.  I, too, have annuities to ensure that that dream becomes a reality!

As you approach retirement, the prospect of sitting back and relaxing with your feet on the footstool, without work beckoning on Monday morning seems particularly inviting. To enjoy your twilight years with peace of mind, you would need a steady source of income that enables you to live comfortably.
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Annuities Immediate presents the following information on life insurance and women.  I have been completely shocked by the number of women that I know that actually do not have life insurance.  Some of them are women that have had careers, but have taken a step back to raise kids and support a husband’s career.   These are savvy, smart and educated women.  Without life insurance or annuities?

That is the question that I, too, once faced.  However, by consulting a few financial planners and insurance professionals that friends and colleagues recommended, that changed pretty quickly for me.  I, too, found that I needed to have life insurance, I needed to make sure that I was preparing myself for retirement and could not "assume" that my husband’s investments were going to support us in our retirement.  What if something happened to my husband?  What if we divorced?  How could I insure my financial future and support my children if something happened to me as well?  Read on for more thoughts…

The importance of life insurance for women. The changing role of life insurance and how it affects families. Mothers are now policy holders and just not the beneficiary.
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