Annuities

Annuity Income Riders

Presented by Jim Guynan

Recently I heard that almost 60% of index annuities sold today have an income rider attached to them. Also, the average time before the income is activated from the rider is only 1.8 years. What does this tell us about fixed index purchases and income riders? Simply, that more than half of the owners of fixed annuities are thinking about the future use of these assets as possible income sources and they are utilizing it in a new way.

Before income riders became available there were really only two ways to access an annuity; a 10% penalty free withdrawal per contract year or to annuitize the annuity contract. Now there is a third option which is activating an income rider payout that will provide an income for the rest of the owner’s life. The advantage of this is that the owner does not give up control of the underlying fixed annuity in order to do so. What is interesting to me is that the average time to activate is so short. Many of the illustrations I run for agents show longer deferral times before income is needed. One explanation could be that only those people who need income now are buying the annuities. As time moves on, I believe that more young people will become educated on the advantages of the riders and take advantage of the longer deferral.

Sales & Marketing

Tips To Managing Your Inheritance

Presented by Marketing Take your time. This is an emotional time…not the best time to be making important financial decisions. Short of meeting any required tax or legal deadlines, don’t make hasty decisions concerning your inheritance. Identify a team of reputable, trusted advisors (attorney, accountant, financial/insurance advisors). There are complicated tax laws and requirements related to certain inherited assets. Without accurate, reliable advice, you may find an unnecessarily large chunk of your inheritance going to pay taxes. Park the money. Deposit any inherited money or investments in a bank or brokerage account until you’re in a position to make definitive decisions on what you want to do with your inheritance. Understand the tax consequences of inherited assets. If your inheritance is from a spouse, there may be no estate or inheritance taxes due. Otherwise, your inheritance may be subject to federal estate tax or state inheritance tax. Income taxes are also a consideration. Treat inherited retirement assets with care. The tax treatment of inherited retirement assets is a complex subject. Make sure the retirement plan administrator does not send you a check for the retirement plan proceeds until you have made a distribution decision. Get sound professional financial and tax advice before taking any money from an inherited retirement plan…otherwise you may find yourself liable for paying income taxes on the entire value of the retirement account. If you received an interest in a trust, familiarize yourself with the trust document and the terms under which you receive distributions from the trust, as well as with the trustee and trust administration fees. Take stock. Create a financial inventory of your assets and your debts. Start with a clean slate and reassess your financial needs, objectives and goals. Develop a financial plan. Consider working with a financial advisor to “test drive” various scenarios and determine how your funds should be invested to accomplish your financial goals. Evaluate your insurance needs. If you inherited valuable personal property, you will probably need to increase your property and casualty coverage or purchase new coverage. If your inheritance is substantial, consider increasing your liability insurance to protect against lawsuits. Finally, evaluate whether your life insurance needs have changed as a result of your inheritance. Review your estate plan. Your inheritance, together with your experience in managing it, may lead you to make changes in your estate plan. Your experience in receiving an inheritance may prompt you to want to do a better job of how your estate is structured and administered for the benefit of your heirs.
Annuities

Leave on or Live on

Presented by David Corwin Clients at older ages need to start deciding on what sums of money will be “Leave on” or the money that they will “Live on”.  Let’s look at choices that clients have to contend with. Leave on.  Let’s talk about Mutual Funds, CDs, stocks and other non-real estate type investments.  These types of investments (if not held in an IRA form) will generally be extremely difficult to leave on to your loved ones.  The reason is that there are no beneficiary arrangements on these types of accounts, thus the ugly word “probate” comes into play here.  Still within the “Leave on” subject, annuities are beneficial in that there are beneficiary arrangements that allow the money to pass to your loved ones very easily (unless of course you don’t think that three weeks is easy), and they avoid the probate. Live on.  In the same order, I will cover Mutual Funds, CDs and stock investments.  When you want to start living on Mutual Funds and stocks, it becomes problematic due to the possible long or short term capital gains you will face.  Now, I will say that to get access to stocks and Mutual Funds is pretty easy due to the fact that you can just sell them to get the necessary money to live on.  How long the income will last depends upon market fluctuations.  Same thing with CDs, the access isn’t the problem here (unless you don’t mind waiting in long lines at the bank).  You will undoubtedly out live your money; it’s a fact.  Annuities, if structured properly, are the best bet for “living on”.  You can annuitize, take withdrawals, or exercise the income rider. What we have covered here is really just the tip of the iceberg and each individual has their own needs and objectives.  There are certain benefits that may or may not out weigh the features of another and should be explored in depth.
Annuities

Components to an Indexed Annuity

Brought to you by David Corwin Indexed Annuity Contract Features will have an effect on Annuity Performance?  Before purchasing an indexed annuity, it is important to understand various contract features and their potential impact on annuity performance. The Index  Indexed annuities credit interest based on the movement of the stock market index to which the annuity is linked. A market index tracks the performance of a group of stocks representing a specific market segment or the entire stock market. The S&P 500 is the index most commonly used for this purpose. Another index, however, may be used, such as the Dow Jones Industrial Average, NASDAQ 100 or Russell 2000. It is important to understand that when you buy an indexed annuity, you are purchasing an insurance contract and not shares of any stock or index. Indexing Method  An indexed annuity earns a minimum rate of interest and then offers the potential for excess interest earnings based on the performance of the index to which the annuity is linked. The indexing method is the approach used to measure the amount of change in the index and, as a result, has a direct impact on the potential growth of an indexed annuity. Participation Rate  The participation rate determines how much of the increase in the index will be credited to the indexed annuity. The participation rate is usually less than 100%. For example, if the S&P 500 increases by 10% and the participation rate is 80%, the indexed annuity would be credited with 8%. The insurance company may have the right to change the participation rate from year to year or when the annuity is renewed for a new term. Margin/Spread/Administrative Fee  Some indexed annuities subtract a specific percentage from the calculated change in the index before crediting interest to the contract. This “margin,” “spread” or “administrative fee” which may be charged instead of, or in addition to, a participation rate, is subtracted only if the change in the index produces a positive interest rate. Index Term  This is the period over which index-linked interest is calculated and/or the length of time during which withdrawals or surrenders are subject to a charge. Cap Rate  Some indexed annuities put a cap or maximum on the index-linked interest that will be credited to the annuity. For example, if the market index increases 20% and the annuity has a 15% cap rate, only 15% will be credited to the annuity. Not all annuities have a cap rate. Floor  This is the minimum guaranteed interest that will be credited to the annuity. This guarantee is based on the claims-paying ability of the issuing insurance company. Averaging  Some indexed annuities use an average of the changes in the index’s value rather than the actual value of the index on a specified date. Interest Compounding  Some indexed annuities pay simple interest during the index term, while others pay compound interest, meaning that index-linked interest that has already been credited to the contract during the term also earns interest in the future. Exclusion of Dividends  In measuring index gains, most indexed annuities count only equity index gains from market price changes and exclude any gains from dividends. Vesting  In some indexed annuities, none or only part of the index-linked interest is credited to the contract if the annuity is surrendered before the end of the term. The combination of these policy features found in any particular indexed annuity will make a difference in the amount of money your annuity investment will earn and in the amount of money you will receive if you surrender the annuity early. As a result, before you purchase an indexed annuity, it is important that you fully understand the various features in the contract you are considering.
Annuities

Annuity Suitability

Authored by Jim Guynan First of all, an 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, an 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 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 Variable annuities may be best suited for individuals who: -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 Indexed annuities may be best suited for individuals who: -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 principal 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