Annuities are an ideal product to add to your Retirement Portfolio …
Why ?… Because they assist in …
Maximizing Your Nest Egg
Annuities can help to accomplish retirement goals by:
- Protecting your assets and offer opportunities for growth of income.
- Paying guaranteed income for life, among other payout options.
What is an Annuity
An annuity is a contract between you and an insurance company.
- You agree to fund your annuity with either a lump sum payment or through monthly or yearly payments.
- The interest accumulation of the plan grows on a tax-deferred basis. In other words, while your annuity is earning interest and you are not taking withdrawals, you don’t pay taxes on interest.
Types of annuities to consider.
Fixed annuities – you receive a guaranteed rate of return that will be no lower than the contract guaranteed rate.
Fixed index annuities – offers a participation rate in stock market gains for example it can be the performance of an index, like the S&P 500, while the insurance company guarantees you do not participate in losses.
Variable annuities , for example, have a value based on the performance of a portfolio of professionally managed investments.
Annuity Plans
Nonqualified annuity plan
- Premiums come from after-tax funds This includes cash, excess savings, CDs, mutual funds, life insurance cash value or 1035 exchanges.
- When you take money out, only the earnings are taxable as ordinary income.
Qualified annuity plan
- Premiums come from Roth IRAs or pretax funds (IRAs, 401(k)s, CD IRAs, IRA annuities, IRA mutual funds, TSAs/403(b)s or governmental 457s).
- When you take a distribution, the entire pre-tax amount distributed (contributions and earnings) is subject to ordinary income taxes.
Here is an Example of a past customer cashing out a portion of their 401k plan to eliminate loss of savings due to a major correction in markets: they purchased a:
Single Premium Fixed Indexed Annuity
Guarantees– You can choose the certainty of a fixed rate of interest that is declared each year by the insurance company and subject to minimum guarantees. Your annuity will always have a Minimum Guaranteed Contract Value.
Growth Potential – You can pursue additional growth with interest credits that are based in part on the performance of an external market index. You can choose from indexed crediting options and reset your options at any time.
A Premium Bonus – There is no direct downside market risk to your money.
Tax Deferral– You don’t pay taxes on any growth until you withdraw money.
Income– you have options to create a regular stream of income for either a certain period of time or for the rest of your life.
A Death Benefit – Your annuity can offer your loved ones a quick source of funds to settle matters after your death
Premium ($100,000) is allocated to the Equity Index Strategy that will receive interest that is calculated in reference to the upward movement of an external market index, i.e. S&P 500.
In this example the customer chose a cap in returns equal to the participation rate, which means they participated in 70% of the upside with zero risk to the downside. The key feature is that you are not purchasing stock or directly investing in the stock market. The insurance company pays out 70% of the gains but absorbs the risk of actual negative returns. They do keep 30% of the upside to compensate for that risk.
The Table below illustrates the most recent 10-year indexing values. Notice the fifth and ninth years, which are years when the market was down, but the index strategy return did not go negative.
| Year Ending | Age | Annual Return | Accumulated Value | Accumulated Value | Death Benefit |
|---|---|---|---|---|---|
| May-25 | 56 | 16.71% | $130,712 | $102,702 | $130,712 |
| May-26 | 57 | 0.10% | $130,846 | $104,208 | $130,846 |
| May-27 | 58 | 10.10% | $144,058 | $114,590 | $144,058 |
| May-28 | 59 | 11.02% | $159,934 | $128,569 | $159,934 |
| May-29 | 60 | 0.00% | $159,934 | $130,089 | $159,934 |
| May-30 | 61 | 22.10% | $195,285 | $160,168 | $195,285 |
| May-31 | 62 | 5.58% | $206,186 | $175,319 | $206,186 |
| May-32 | 63 | 6.72% | $220,049 | $193,457 | $220,049 |
| May-33 | 64 | 0.00% | $220,049 | $199,891 | $220,049 |
| May-34 | 65 | 8.04% | $237,731 | $224,775 | $237,731 |
| May-35 | 66 | 0.10% | $277,449 | $277,449 | $277,449 |
| May-36 | 67 | 10.10% | $277,733 | $277,733 | $277,733 |
| May-37 | 68 | 10.10% | $305,777 | $305,777 | $305,777 |
| May-38 | 69 | 11.02% | $339,475 | $339,475 | $339,475 |
| May-39 | 70 | 0.00% | $339,475 | $339,475 | $339,475 |
| May-40 | 71 | 22.10% | $414,511 | $414,511 | $414,511 |
| May-41 | 72 | 5.58% | $437,649 | $437,649 | $437,649 |
| May-42 | 73 | 6.72% | $467,076 | $467,076 | $467,076 |
| May-43 | 74 | 0.00% | $467,076 | $467,076 | $467,076 |
| May-44 | 75 | 8.04% | $504,606 | $504,606 | $504,606 |
| May-45 | 76 | 16.71% | $588,912 | $588,912 | $588,912 |
| May-46 | 77 | 0.10% | $589,516 | $589,516 | $589,516 |
| May-47 | 78 | 10.10% | $649,041 | $649,041 | $649,041 |
| May-48 | 79 | 11.02% | $720,568 | $720,568 | $720,568 |
| May-49 | 80 | 0.00% | $720,568 | $720,568 | $720,568 |
| May-50 | 81 | 22.10% | $879,840 | $879,840 | $879,840 |
| May-51 | 82 | 5.58% | $928,952 | $928,952 | $928,952 |
In the above table notice how the tenth year cash surrender value equals the accumulated. This is because they chose the 10-year maturity to be the point they could consider cashing out and recovering full vale or begin the guaranteed income withdrawals for life.
Remember, these are customizable structures that are designed to meet your wants and needs in retirement.
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