Annuities
Protecting And Growing Your Savings For A Lifetime
Annuities For American Seniors
Simply put annuities are an Insurance policies for your savings, Which can be a valuable tool for retirees.
During our working years the investment goal should be to grow our retirement funds as much as possible. To accomplish this most people choose a mix of high risk and moderate risk investments, Because they know that over time the market has proven to be a steady investment. Even taking into account potential losses, after enough time has passed your money will return to growth.
Unfortunately retirees don’t have the luxury of time to heal losses from the market, which is why most seniors choose a less risky strategy to managing their Nest eggs. One of the most popular strategies retirees use in an annuity. They offer steady growth, Protection from market losses and can be customized to fit any individuals needs.
Types Of Annuities
Fixed vs. Variable
Insurance agreements known as fixed annuities pay a fixed rate of interest on the account owner’s premiums (or contributions). An insurance firm owns and maintains the annuity contract, which produces a guaranteed income payout (principal + a minimum rate of interest) for a predetermined time or the lifetime of the annuitant, the person who purchased the annuity. Annuities typically have two phases: an accumulation phase during which the premiums generate interest, and a payout phase after that. Benefits may be paid in a set amount, at a certain interest rate, or according to a defined growth formula.
Contrarily, variable annuities pay a rate that changes based on the performance of an investment portfolio (usually a mutual fund portfolio) selected by the account holder. Variable annuities, therefore, provide the potential for greater returns and higher income than fixed annuities. However, there is always a chance that the account’s worth would decrease.
Immediate vs. Deferred
A contract between a person and an insurance company known as an immediate payment annuity guarantees the annuitant a fixed income that begins practically immediately. As a result, payments begin immediately after making a lump sum payment; the amount of each payment is determined by such variables as age, current interest rates, and the length of the repayment period. Typically, older people buy this kind since they might not want to wait to start getting their income stream.
A deferred annuity, on the other hand, delays the start of payments. As opposed to this, income transfers are postponed and begin at a later, predetermined date or event.
Annuities vs. stock investing
Many people buy annuities for an investment. But are they the most effective tool for wealth accumulation or legacy planning? Not usually. While variable annuities may offer the potential to grow wealth through the underlying investments, most fixed annuities are capped at the guaranteed rate. That’s why fixed annuities are not regulated by the SEC.2 So in the true sense of the word, fixed annuities are not investments, they are insurance products.
Annuities may not be ideal for legacy planning, for two main reasons. First, there’s no guarantee that your heirs will receive the remainder of your contracted benefits once you start annuity payments unless, you guessed it, you pay for an additional insurance rider. But buying this rider tends to be expensive and often lowers the estimated monthly income you receive.
Second, inherited annuities don’t offer a step up in cost basis like inherited stocks. Therefore, earnings on an inherited annuity are taxable to the beneficiary. Conversely, the cost basis for inherited stocks is reset to include unrealized gains so no taxes would be owed.
How Annuities Work
Purchase the Annuity
You purchase an annuity contract through an insurance broker or advisor and contribute to it based on the terms of the agreement.
Contributions are invested
The Insurance Company then invests the annuity contributions in various market instrument-like mutual funds. But, depending on your contract, your annuity will likely not fully benefit from the investments.
Recieve Payments at a Future Date
Depending on the terms of the contract, annuities then convert contributions to a series of payments that you’ll receive at a future date.
How Can We Help
Earning, saving, and investing are all crucial elements of your financial journey. And everyone’s journey is a little different. Especially as your wealth grows, your financial picture can often become significantly more complex. Whether it’s purchasing a second home, minimizing your tax burden, or managing your estate and legacy plans, there are usually several moving parts to any financial picture.
What kinds of money decisions do you need help with? Our specialties include:
- Asset allocation
- Retirement readiness
- General tax strategy
- Investment positioning
- Cash flow mapping for retirees
- Insurance planning
- Income Strategy
- Estate and legacy consultation
- Education funding
We want to help you build a smarter, happier, and hopefully richer life – a life of doing what you love most with the people who are most important to you!
