Check or Bet: What To Do With An Annuity

What To Do With An Annuity?

The fastest growing segment of the population are folks 60 and older. How many of these Baby Boomers have set aside enough money to use for the rest of their lives? A third of people over 65 have less than $30,000 in savings when entering retirement.

Is an annuity a good investment option for you? How do you decide to check or bet when it comes to buying annuities?

Here are the top reasons to bet on and check out annuities.

Top Reasons Why You Should Check Or Bet On An Annuity

You’ve Maxed Out Other Retirement Savings Options – Bet

Contributing to a 401(k) and IRA deferrals are a great idea until you reach your max.

Say you’re in a high tax bracket and you’ve maxed out your 401(k). You will be in a lower tax bracket when you retire. In this case, an annuity is a great option for you.

The average fee to have an income rider attached to your Index annuity is about 1%. For example, if you invest $100,000 in an annuity with an income rider, your fee will start off at 1% of $100,000 or $1,000 per year. BUT PLEASE REMEMBER: THAT FEE WILL GO UP EVERY YEAR BASED ON EITHER THE ACCOUNT VALUE GROWING OR, IN MOST CASES, THE BENEFIT BASE GROWING.

You Already Have All the Money You Will Need to Live on For A Long Time – Check

Check or bet? Are you wealthy, have a paid off mansion, and have trusts set up for your children and grandchildren? Pass on an annuity.

You are more than taken care of for the rest of your life and won’t need annuity payments.

You Have Enough Financial Assets to tie up a lot of Money for a Long Time – Bet

If you’re young when you enter into annuities, you won’t have access to your investment for a long time.

Say you come into a chunk of money when you’re 30 and want to invest in an annuity. Can you make it without those funds for another 29 1/2 years? An annuity may be good for a portion of that money.

Have a well-funded savings account and a diversified portfolio to compliment it.

You have a Health Condition That Could Shorten Your Life – Check

Annuity income depends on you surviving past your life savings. A short lifetime due to health concerns makes annuities less attractive investments. You can choose to have a beneficiary on an annuity. They will receive the account balance the day of your death.

There are better options for inheritance that would carry a lighter tax burden. Low-risk investments like mutual funds would be a good option. But an Index Annuity can help you manage the disbursement of those payments after you pass away. For example, if your Index Annuity grew to $100,000 and you passed away, you could dictate to the insurance carrier how your beneficiaries will receive those funds. This means that instead of a lump sum payment to one kid, you could dictate that he receives $1,000 a month until the contract goes to zero.

You are 60 Years Old or Older and Won’t Have Dependable Income in Retirement – Bet

Annuities protect you from outliving your retirement savings. Say you’re near the retirement age, annuities are an even better bet. If you are a healthy 60-year-old man, you could live another 20 years. Are you a woman, another 40? 85% of people over 100 years old are women. Can you afford to live that long? Check or bet? Bet – An annuity can guarantee it.

You are Young and Don’t Already Have an Investment Portfolio – Check

Annuities are a good addition to an already diversified portfolio to cut risk. If you are still young and in the beginning of your career, you have time to invest in higher risk options. Consider investing in mutual funds and stocks first and adding an annuity in your older age. Annuities should supplement the savings and investments you’ve already saved.

You Aren’t Willing To Do Your Own Research – Check

Annuities are confusing.

You need to do your own research and go through the product with a fine tooth comb. Fill out this form and call us. We’re here to help you navigate the annuity waters.

There are consultants who will offer products that carry high commissions but a low value to you. These products are often the most confusing. If you want an easy, straightforward annuity option, you’ve come to the right place. We are industry leading professionals who here to help and educate you.

Other Factors to Keep In Mind When Deciding on Annuities

Tax rates need to be a factor when deciding to check or bet on an annuity.
When the payout starts for the annuity, it will count as regular income. Generally, the capital gains tax rate is 15%. This is the tax you would be facing if cashing in on stock or other investments. This is a consideration that we will discuss while meeting with you. That higher tax rate also gets you the lowest risk. A fixed annuity has a guaranteed payout even if the market fluctuates.

IRA’s and other investments fluctuate with the market. Your investment may be suffering a loss when it gets to crunch time and you need that money. A guaranteed annuity is a great backup plan for these other investments. You will also earn more interest on Fixed Annuities than a savings or money market account.

Riders can make annuities more attractive to those who have decided to check. You can add extended care or terminal illness waivers to cover long term care. If you have a family history or have a condition that may need these services, this rider could be a benefit.

You can add a death benefits rider to make your annuity a better inheritance. These allow for value gains for the beneficiary following your death. While still not the best choice for inheritance, this can make the situation a little better.

Adding these extra products to the annuity you’re looking at can make them a better bet for you. The last thing you want when you are approaching the sunset of your life is to worry about money. Annuities provide a guaranteed source of income which can be comforting. Choosing between different types, different rates, and other options can all become overwhelming.

We want to help provide clarity on your best options for retirement. We want you to be set up with guaranteed income for life. Let us answer your questions and clear up any confusion you may have.

Understanding Annuities for My Financial Future

Understanding Annuities

There has never been a better time to invest in your financial future. There is a wide variety of strategies to generate income, protect your assets, and secure your retirement income stream. The cost of living is rising and life expectancy is simultaneously increasing for many adults. You may be wondering how to best create an investment strategy in order to not run out of money during retirement.

People want to make the most of their money but without the chance of losing it all.

That’s where annuity products come in.

What Is An Annuity?

An annuity is a contractual financial product sold by insurance companies. Annuities do two things:

To help people limit their risk and give them a better return than a CD,
Or they’re available to help you create a personal pension

Annuities then pay out a stream of payments to the individual at a later point in time.

There are a variety of different annuity products and benefits to each type. As investors seek options to shed risk and guarantee returns, annuities have grown in popularity. With deferred annuities, as well as various subsets, they offer a great balance of protection and reward.

The right annuity products are safe and will help secure your financial future.

How Does An Annuity Help Your Financial Future?

Annuities have changed over the years. While there used to be very limited products to choose from, all that is different now. Annuities can be tied to the performance of stock indexes and offer a wide variety of payout and tax benefits. Most annuities are tied to the S&P 500 but in recent years we have seen a lot of managed volatility indexes used in annuities.

Annuities are recommended as one of the best ways to boost your income when it comes to retirement planning. It is difficult to know how global politics, changing interest rates, real estate transactions and unemployment will affect investment returns. And most of us remember the major impact of the last financial crisis.The financial crisis is estimated to have had a total household wealth impact of over $19 trillion.

With that type of volatility in the market, an annuity is a safer alternative. You can have the benefit of your money growing without the risk of losing any principal. An annuity often guarantees a payout amount that is fixed. This amount can grow based on the performance of the index or stock fund it is tied to. In addition, there are tax benefits that will ease any uncertainty of the total income you can enjoy from your annuity products.

Are There Tax Benefits?

One of the best parts of an annuity is the tax protection it provides. The income payments that you receive can be taxed two ways:

Exclusion Ratio: If you annuitize the contract, you’ll have an exclusion ratio which will tell you how much is the return of principal and how much is interest on your money (the taxable amount). As an example, $1000 payments may have $900 of return of principle and $100 of interest.
LIFO (Last In First Out): Think of pouring rocks in a bucket. The last ones you put in are the first ones to come out. This is the same with an annuity with an income rider. You will pay tax on the income that you’ve earned first and then you will go into return of principle, paying nothing in tax for years until the account goes to zero. Once you get into the insurance companies pockets, it becomes 100% taxable again.

When you do begin to make withdrawals, the income will be taxed. The benefit in terms of retirement planning is that you can sleep better at night knowing that your basic needs will be met with annuity payments.

Annuities & Taxation

There are many different ways annuity payouts are taxed. You will want to understand your personal strategy and match that to the type of annuity you invest in.

For instance, you may want a lump sum or deferred payout. How these monies interact with your other investments and social security income will impact your tax liability down the road.

Like all investment strategies, there are winning ways to leverage annuity products in terms of your individual tax situation. A winning strategy can often include using after-tax dollars to fund your annuity. Understanding your tax and income goals will help you pick the right annuity or annuities for you.

There Are Different Types of Annuities

There are many different types of annuities from which to choose.

The two major types of annuities are deferred and immediate.

Deferred Annuities offer major growth opportunities

The upside to deferred annuities is that they help you set your money aside and let it grow. With a specific timeline when payoffs start your money will be growing as interest accrues.

Immediate Annuities start paying out in no more than 1 year

After you start paying your premium, Immediate Annuities go to work right away at generating payouts. They are often the perfect product for individuals who are close to retirement.

Annuity subsets offer variety

In addition, there are subsets of annuities that include Fixed and Fixed Index Annuities. With fair returns and minimal risk, Fixed Index Annuities are one of the most popular investment products.

There Are Two Distinct Phases of An Annuity

Just as there are different types of annuities, there are also different phases of annuities.

When it comes to building your financial future, you need to know the phase you are in personally, as well as the place your annuity can take you.

There is both the accumulation and the distribution phase in any annuity. Making sure you match your financial plans to the performance and structure of a particular annuity will remove any surprises.

Get The Best For Your Financial Future

Tired of low rates? Thinking it might be time to invest in an annuity?

Tennessee Annuity Rates can help.

We offer simple solutions for your situation.

We know that market risk isn’t for everyone. And we also know that everyone’s financial situation is unique.

We will help you find the best products and services for your unique situation. Don’t wait.

Contact Tennessee Annuity Rates now to receive a free consultation and makes the most of your financial future starting today.

The Importance of Understanding The Different Types of Annuity

Understanding Different Annuities

Receiving A Paycheck For The Rest Of Your Life Sounds Great, Right? This isn’t a dream. It’s actually possible thanks to annuities.

Annuities are a form of life insurance. You pay a sum of money (called a single premium annuity, not to be confused with a SPIA). This can be either all at once or over a period of time (flexible premium annuity). In return, your money does not go down (only if you buy from one of our advisors), it only goes up (depending on the crediting option you choose). Also if you buy an income rider (you will pay a fee, should only be about 1%) you receive regular disbursements of that money until you’re no longer living.

A staggering 84% of Americans believe that this is a beneficial concept, yet only 14% have actually purchased an annuity themselves.

A primary reason for the hesitation: A lack of knowledge around annuity options and uncertainty around purchase procedures.

It’s important to understand that not all annuities are created equal before you sign on the dotted line.

Interested in learning more? Let’s dig in!

The Big Two: Deferred Annuities Versus Immediate Annuities

Our discussion on the different types of annuity must begin with the two major categories: deferred and immediate.

Deferred Annuities

Put simply, deferred annuities are those that you don’t receive until a set time in the future. Essentially, you pay your premiums in full, then wait. Some you can add money to called a flexible premium. I like the flexible premium annuities because they allow you to make additional deposits and all of the money matures at the same time. Again this is only available when you buy through our network of advisors. We have removed 90% of the annuities on the market and only allow the top 6-8 insurance carriers to be sold. That said other insurance people or advisors will sell you anything just to make a commission, we make sure you don’t get screwed.

The obvious advantage to this type of annuity? The longer your money sits, the more it grows. In addition, the investment remains tax-free until you’re ready to pull it out, at which time it’s taxed at the ordinary income rate. Again any return you made in the annuity comes out first and you pay tax on that.

Are Deferred Annuities Beneficial?

This type of annuity is also beneficial in the sense that it works with almost every pocketbook and timeline. Got a large sum of money you’re ready to invest? Great, you can put it all on the table and pay your premium immediately, again up to $1,000,000 (and we do a few per month that are above this number). Rather wait and pay your premium off over time in regular intervals, flexible premiums? That works too. Most annuities start at $10,000 or $25,000.

Yet, while time is on your side in that regard, it might be against it in another. The main drawback to this type of annuity is that you have to wait to access it.

If you make withdrawals before you reach retirement age, you’ll not only pay the income tax on your earnings. You will also be subject to some pretty hefty early withdrawal penalties and surrender charges, some of which could be as high as 20% of your investment when you buy outside of our network. REMEMBER do NOT allow anyone to sell you an annuity that has a surrender charge that is over 9% MAX MAX 10% and the term should not exceed 9 years. Most should be 6-7-8 years.

Immediate Annuities

The other type of annuity is an immediate one.

Contrary to deferred annuities, which have an accumulation period during which you must wait to receive your earnings, immediate annuities start paying out no more than one year after you’ve paid your premium.

While most people choose to invest in deferred annuities when they’re fairly far from retirement age, those closer to that magic number might want to invest in immediate annuities.

This way, they’ll be a shorter window of time between when they make their payment and when they begin receiving their money.

Another advantage to these types of annuity is that they can provide a useful tax break. Here’s the breakdown:

The payments you receive on an immediate annuity are divided into interest and principal.

While the interest is taxed as ordinary income, the principal on these types of annuity remains tax-free, because it is essentially a return on your initial investment. This is known as the exclusion ratio.

Yet, one of the main drawbacks to an immediate annuity? It expires when you do, so the window of time to access it might be narrow depending on when you choose to invest.

Annuity Sub-Sets

Once you’ve decided whether you want to invest in a deferred or immediate annuity, there’s one more step to take. Now you must decide if you want to invest in a Fixed (Traditional), Fixed Indexed (FIA) or Variable Deferred Annuity.

Fixed (Traditional): This type of annuity is essentially a savings account offered by your insurance agency. The agency will use its in-house portfolio to determine the rate at which your money will build interest during the accumulation period. Lock in your interest rate in order to guarantee yourself that rate. That’s the good news. Most fixed products are 3 years to 7 years. The sweet spot as of this post is 5 years.

That same lock-tight security applies to your payments on these types of annuity. The amount you receive is then set. It will not change over the course of your lifetime.

This type of annuity is one of the safest and is advisable for the more risk-averse population, generally those 60 and older.

Fixed Indexed (FIA)

While Fixed Traditional deferred annuities lock you in a certain interest rate, the interest provided under FIA (index annuity) annuities is based on how the stock market performs.

Consequently, your interest rate is determined not by an internal portfolio, but by the performance of an external index. One example is the S&P 500.

While the credited interest is subject to these external conditions, it may fluctuate during the accumulation period, but it will never fall below zero.

Variable

Interest rates are subject to market volatility. A company’s rate lock does not offer security. They could even go way below zero. It is like owning mutual funds. When the market drops 20% your variable annuity will fall even more then 20%.

Such conditions can be risky. Your insurance company will set a minimum payment amount at the onset to ensure that no matter how the market dips and surges, you’ll have a guaranteed payout at the end.

PLEASE REMEMBER the FEES on this type of annuity are 3-5% and have market risk. Most of our clients do not buy this unless they are in their 30’s max 40’s and have 20 years before they retire.

Making the Move: The Right Types of Annuity For You

Not sure if an annuity is right for you? Or maybe you’re sure you want to invest, but you don’t know where to start or who to talk to?

That’s why we’re here. We make it easy to pick the investment plan that best fits your budget, goals, and future dreams.

Learn more about the services we provide, browse our blog for relevant topics, or leave a comment below and let’s start saving!

What Is A Tax Deferred Annuity?

Tax Deferred Annuities

So you’ve decided to stop stuffing money under your mattress (or the bank account equivalent of putting it in a savings account with 0.000001% interest).

Congratulations! Before you lose your motivation, let’s explore why a tax deferred annuity could be an ideal option for those funds.

Although annuities are often associated with retirement income, you do not have to be on your way to your sunset years to purchase these products. Instead, read on to decide what’s the best investment for your needs. We promise this will make cents!

Just the Tax Facts

First up, you may have heard of tax-deferred annuities called by another name: “fixed tax deferred annuity.” For sake of brevity, we’re going to lop off the “fixed.”

One of the first things you need to know about this investment strategy is that it is a contract. You are entering into a commitment to yourself and your insurance company. (So choose wisely!)

Second, this type of annuity may or may not guarantee income.

Wait! Don’t rush off and quit your job just yet.

There are, indeed, benefits:

Annuities are, as their name says, tax-deferred. Other investment strategies such as certificates of deposit are not. This benefit leads to compounding interest!
Income stream, guaranteed for life if you choose this option.
Safety, in that the annuity is backed and sold only by qualified life insurance companies that hold reserves equal to the withdrawal value of your policy.

There are also, oh yes, drawbacks:

The biggest drawback of tax-deferred annuities is for those people who are just commitment-prone. You may think an annuity is the hottest thing on the planet, but what happens when you change your mind?

Fees and surrender chargers. That’s what happens. Penalties can be huge for early withdrawal on annuities, so just don’t do it. Once you commit, do not quit. Please remember NEVER EVER buy a product that is longer then 9 years. Most should be 6-7-8 years in term before it’s out of surrender.

Tax Deferred Annuity for You and Me

OK, maybe you’re not ready to purchase that annuity just yet, but your neighbors, friends, coworkers, and business owners all are.

The Insurance Information Institute studied insurance product purchases from 2006-2015 and saw an upswing in deferred annuity asset purchases. In 2015, the last year of their study, consumers bought:

$1,922 billion in variable annuities
$448 billion in fixed annuities
$334 billion in indexed annuities

Although 2013 was the highest for annuity purchases in the time frame studied, the three most recent years (2013, 2014, and 2015) soared over all of the other years in the timeframe.

So who are these buyers pushing up the numbers?

It’s not who you think.

It may seem like only the rich can afford to purchase insurance products that will make them richer. But really, 70% of annuity buyers have household incomes under $100K.

And if you think tax deferred annuity buyers are only a certain age, think again. Please remember most insurance carriers only allow you to buy income rider annuities after the age of 50. But if you are looking for safety and tax differed growth you can purchase these at any age. Please remember there are IRS penalties if you take the money our before 59.5 but we can show you have to push this back and not be taxes, through a 1035 exchange.

In 2015, USA Today reported that millennials were snapping up annuities. This actually makes sense, because annuities really do benefit you in the long-term. Millennials have a long way to go before they’re able to tap into their retirement plans, so they’re thinking future-forward and putting money away for decades down the line.

It’s Guaranteed: Death and Taxes

Ah yes, the old cliche, that you can only count on two things in life: death and taxes.

Well, interestingly enough, the two commingle pretty well when it comes to tax-deferred annuities.

It sounds a bit like something out of the Marvel universe, but you should ask your annuity pro (your financial advisor) about the Death Benefit Rider.

Not all insurance companies offer this. And of course, the riders vary by company, so you really do need to ask for clarification.

There are two basic kinds of death benefit rider annuities:

Guaranteed payout of the initial amount (lump sum) invested, with – of course – reductions for any withdrawals you may have taken out; or
Guaranteed payout of the highest recorded value of the contract.
Guaranteed payout with rising income.

The Sky (and Your Age) is the Limit

Like other retirement investments, tax-deferred annuities have their own set of rules and regulations.

Contributions come from pre-tax income, when you buy them inside of your IRA’s / qualified accounts.
You can start withdrawing after age 59 and a half but remember taxes come our first on any growth you have had.
You can contribute as much as you want to your tax deferred annuity. Most start at 10,000 or 25,000 and require approval for over 1,000,000

The exceptions and fine print can really make your head spin, such as lifetime limits, income amounts and crediting options (how you make money in the annuity).

Basically, there are options, but do not hesitate to wave your hand and ask for help!

Important note: The government, insurance agency representatives and the Securities Exchange Commission are always coming together to refine these rulings. It is best to talk to your investment professionals to ensure you’ve got the latest and greatest details.

What to Do with an Annuity

Aside from, of course, enjoying the benefits of your good long-term planning investment!

And no, we aren’t advising to withdraw it all and hit the horse races.

You should know that you do have the option to withdraw your entire investment as a lump sum once the investment period expires or most index annuities will allow you to withdrawal 10% per year.

You can also roll the money from the expiring tax deferred annuity over (similar to how you would do if you have a certificate of deposit that is expiring) and pay zero taxes on that transaction. This transaction is called a 1035 exchange. We can help walk you through this process.

Be warned! Shady advisors hide this option from clients to make another commission. Do not fall for this, get a second opinion.

Let’s Talk

We’d love to hear if you fall into the 70% of annuity buyers in the income range studied. Have tax-deferred annuities helped you planning out your future?

Already have an investment strategy? That’s OK. How about a free review and comparison of where you may be better placed with your funds? It’s just too easy to get ripped off these days.

We want you to be informed, make good choices, and be excited about your future. The best way we’ve seen to do this is to educate, educate, educate. Once you purchase the wrong tax deferred annuity or put too much money into an annuity that is not tailored to your needs, it can be hard to come back.

Whether you’re feeling risk-tolerant or risk averse, let’s talk tax annuities together.

Join the conversation below. You can also post a request for more information or click here to receive fast, no-cost, no-commitment information tailored for your investment and future financial needs.