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1) The variable annuity
– Once popular during the booming 90’s and
even sold by investment brokerage houses, variable annuities
can increase in value, but they can also go down in
value. In addition, there can be taxes and fees. We
don’t offer variable annuities because everything
we offer is guaranteed. If you know someone who had
a bad experience with an annuity, it probably was from
a variable annuity.
2) The immediate annuity
– Here the company controls your lump sum under
a contract and they agree to pay you a monthly amount
for the rest of your life or for a “period certain”
like 5 or 10 years. Some offer a combination of the
two. These immediate annuities offer you a lifetime
income with a guarantee of cash flow to at least your
heirs if you live less than the “period certain.”
A common comparison to an immediate annuity is Social
Security or a pension plan in that they provide monthly
income throughout your lifetime. Some annuities also
have a right of survivorship for a spouse. Their main
advantage is that you can’t outlive your income.
Immediate annuities may also be used for Long Term Care
solutions and to assist with an imminent Medicaid situation.
3) The fixed annuity
– These are the most popular annuities because
you control the money. In a way, a fixed annuity is
like a super CD (Certificate of Deposit) except with
more advantages. Until you take money out of one, the
earnings are tax deferred just like an IRA (Individual
Retirement Account). In fact, a large percentage of
fixed annuities are IRA’s (funds transferred from
IRA’s, 401k’s or other
retirement funds). The principal and interest are guaranteed
by the insurance company. There is no probate and your
heirs can receive the funds within a couple weeks. You
are not penalized on your Social Security tax and there
is no capital gains tax. There is ordinary income tax
due when you take it out. In the case of traditional
IRA’s, all distributions are taxable but the heirs
have the option of “stretching the IRA”
so the tax burden is spread out and the earnings continue
to build.
Indexed annuities - are a type of fixed annuity with
growth options linked to an index, such as the S&P
500 (Standard and Poor’s 500 leading companies),
bonds rates, or the NASDAQ. The most popular ones currently
are linked to the S&P 500. The advantage is that
your account value increases on an annual basis if the
market index goes up but doesn’t decrease if the
market index goes down. In addition, even if the market
index were to go down every year you owned it, there
is a back-up guarantee of interest to be credited to
your account.
Because you are not paying any fees or commissions
to purchase an annuity and the companies are actually
spending money to set one up, they protect themselves
from anyone wanting all their money back before they’ve
had a chance to at least break even. They do this with
an early withdrawal penalty and that typically is spread
over ten years with decreasing penalty each year. For
example, a ten-year penalty would have a 10% penalty
within the first year and it would go down each year
after that, e.g. 10-9-8-7-6-5-4-3-2- and finally 1%.
However, you always have some liquidity options. Almost
all annuities offer 10% liquidity every year without
a penalty. We have found that people rarely take out
more than 10% in any one year because taxes would be
a greater concern and their asset would not last as
long as they had originally intended.
There are many facets to consider, and we provide a
trustworthy assessment based on your needs. We never
bill you, and no one has ever lost a dollar on an annuity
acquired through us. Your secure retirement is our business.
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