Deferred Annuity Suitability
Presented by Jim Guynan The following is a comparison of the three types of annuities in the marketplace today and where they may be applicable. These are good guidelines to keep in mind when prospecting your current client list or visiting with a new prospect who has not purchased an annuity before. A deferred annuity should be considered as a longer-term investment. If, for example, your objective is to save for retirement and you are already contributing the maximum to an IRA and/or employer-sponsored retirement plan, a deferred annuity might be right for you. But which type of annuity? The answer to that question depends primarily on your investment objectives and risk tolerance. Fixed interest deferred annuities may be best suited for individuals who:- Prefer to rely on fixed rates of return
- Focus on preservation of assets
- Want protection from market volatility
- Prefer to delegate investment decisions and risks to the insurance company
- Understand that a fixed rate of return may not provide a good hedge against inflation
- Prefer to invest in equities
- Want to make their own investment decisions
- Understand that assets can decline in value
- Are willing to assume the risk of loss of principal in exchange for the possibility of greater asset growth and a stronger hedge against inflation
- Are adverse to risk
- Understand that a rate of return linked to stock market performance provides the potential for higher returns than fixed interest investments, together with the risk of losing money if the issuing company does not guarantee 100% of the principle and no index-linked interest is credited, or if the indexed annuity is surrendered while a surrender charge is in effect
- Prefer to delegate investment decisions to others
- Want less market risk than with a variable annuity
Retirement and Social Security
Presented by David Corwin The Social Security Administration estimates that 96% of American workers are covered by Social Security. Many Americans, however, don’t have a full understanding of Social Security and the benefits it provides. For example, many people are not aware that:- Social Security is currently the largest social insurance program in the U.S., funded through dedicated payroll taxes called Federal Insurance Contributions Act (FICA).
- If they are injured or become ill and cannot work, they may qualify for Social Security disability benefits.
- If they die prior to retirement, certain family members may be eligible for Social Security survivor benefits based on their work and earnings record.
- The Social Security retirement benefit is designed to replace a percentage of earnings at retirement and the amount received will depend primarily on two factors…lifetime earnings history and retirement age.
- Depending on year of birth, taking Social Security retirement benefits early can result in as much as a 30% reduction in the retirement benefit that would be payable at full retirement age.
- On the other hand, deferring Social Security retirement benefits to age 70 can result in as much as a 32% higher retirement benefit as compared to the benefit available at full retirement age.
- A portion of the Social Security retirement benefit may be subject to income tax.
- There are a variety of strategies that can be used to enhance the value of Social Security retirement benefits.
For most people, their monthly Social Security check will form an important part of their retirement income.
Indexed Annuity Advantages and Disadvantages
Presented by Jim Guynan An indexed annuity can be a great way to save for retirement on a tax-deferred basis, in effect creating your own personal “pension” plan. As with any investment, however, there are also potential disadvantages that should be evaluated before purchasing an indexed annuity. ADVANTAGES: * An indexed annuity provides the opportunity to benefit from a rising stock market with an interest rate linked to a market index, while also offering a minimum guaranteed interest rate. * Indexed annuity earnings are tax deferred so long as they remain in the annuity. When compared to an investment whose earnings are taxed each year, tax deferral offers the potential for accumulating significantly higher amounts of money over time. * An annuity can be used to provide a steady source of retirement income that you cannot outlive. * Unlike an IRA or employer-sponsored retirement plan, there are no annual contribution limits to an annuity…you can contribute as much as you want. * Subject to the terms of the contract, there is no required date by which you must begin receiving annuity income payments, providing you with the flexibility to defer payments until you need the income. * If you die while your annuity still has value, the annuity death benefit passes directly to your beneficiary without probate. * In most states, an annuity is free from the claims of a creditor. DISADVANTAGES: * Premiums for a non-qualified annuity are not tax deductible, meaning that they are made with after-tax dollars. * While you can surrender or make withdrawals from an annuity before you begin receiving income payments, the surrender or withdrawal may be subject to a charge if made within a stated number of years after the annuity is initially purchased. Withdrawals will reduce the value of the death benefit and any optional benefits. * There is a risk of losing money if the issuing company does not guarantee 100% of the principle and no index-linked interest is credited, or if the indexed annuity is surrendered while a surrender charge is in effect. * If made prior to age 59-1/2, a surrender or withdrawal will be subject to a 10% federal penalty tax unless one of the exceptions to this tax is met. * When received, investment gains are subject to ordinary income tax rates and not the lower capital gains tax rate. * Once annuity income payments begin, the payment amount cannot be changed and withdrawals above the payment amount generally are not available.