What’s the “Real” Fixed Annuity Rate?
Annuity rates can often change in tandem with the rates paid on other fixed interest investments. However, whenever rates drop, the real return on annuities could potentially be higher than other interest-paying assets. First of all, fixed deferred annuities typically promise a minimum rate of return for the term of the contract. For example, if you select a fixed annuitythat locks in current rates for five years, you will earn a competitive rate for the first five contract years. After that, you will receive no less than the minimum rate, regardless of how low market rates might possibly go. Such an annuity is called a multi-year guarantee annuity. Second, annuities are tax-deferred investments. That means the earnings on your annuity’s principal will compound without you owing current taxes. Other fixed income investments, such as CDs, are taxed as interest is credited (of course, CDs are FDIC insured for up to $250,000 per account per beneficiary through 12/31/09). Even if you reinvest the interest, you have to pay income tax. This reduces the effective rate of return on your taxable fixed interest investments. Please note, however, that annuities are designed for long-term investing and ordinary federal income taxes and a 10% tax [...]
Categories: annuity rates Tags: fixed annuity rate
Mistakes in Titling Annuities Could Have Undesirable Results
There’s more to retirement than managing assets; you must also ensure that those assets are titled correctly. Not doing so, particularly in regard to annuities, can have major implications for you and your loved ones. Let’s say you decide to invest move some of your assets from a mutual fund to an annuity because you want your beneficiaries—your children—to receive the annuity death benefit. The chart below illustrates. Sample titling of an Annuity vs. Mutual fund: Mutual fund Title of account Joint owners: John and Jane Doe, joint tenants with right of survivorship (JTWROS) Event John Doe’s death Asset distribution Jane Doe, as joint tenant, controls the assets in the mutual fund Annuity Title of account Joint owners: John and Jane Doe Annuitant: John Doe Beneficiaries: Sam and Sarah Doe Event John Doe’s death Asset distribution As beneficiaries, Sam and Sarah Doe receive the annuity death benefit This seems simple enough but not so fast. Mis-titling the annuity could potentially result in an unexpected payout with undesirable tax consequences. Here’s how. Again, John and Jane Doe are the owners of the annuity. If John Doe dies, the annuity would in all likelihood pay out to the beneficiaries, the [...]
Categories: annuity titling Tags: annuitant, asset titling
I Don’t Want an Deferred Annuity Because I Can’t Get My Money Out
Retirees often want to know how quickly they can get to their money in case they need to cover extraordinary expenses such as a medical emergency, or a home or auto repair. This need for liquidity may cause them to avoid deferred annuities. However, when you look closely, you’ll see that annuities can possibly provide access to funds that can accommodate many circumstances. For instance, what if you need to take out money before the deferred annuity matures? Most companies will let you remove a portion of your account’s value each year without paying a withdrawal charge. This is usually 10%, and once the surrender charge period expires, you’ll be able to withdraw as much as you want without paying any penalties to the issuer. But annuities also can allow for other circumstances. Suppose you are worried about money for future long-term care or a medical emergency? Some annuity companies will give you penalty-free access to your funds if you have to go to a nursing home or come down with a critical illness. And what about income from your deferred annuity? If you reinvest, the income is not reported on your tax retyrn and in fact, may help lower the tax [...]
Categories: annuity liquidity, deferred annuities Tags: deferred annuity
Javelin Marketing: Immediate Annuity Revamped for Modern Times
The word “annuity” brings to mind different meanings for many investors. That’s because there are different types of annuities designed for different purposes. One of these is the immediate fixed annuity, which can provide an immediate stream of cash payments over a lifetime or a defined period of time. If the investor has chosen a lifetime payout retirement option, he or she typically pays a single premium to an annuity company. In return, the company agrees to pay the investor regular and ongoing cash payments for life, or for a lesser amount to continue over the life of both spouses. Although many investors choose to receive monthly payments, it is also possible to receive quarterly, semi-annual, or annual payments as well. Assuming the payments are structured over a lifetime, the investor is provided with a lifetime income he or she cannot outlive. Such an investment is useful for investors requiring additional retirement income, for support of a community spouse in the event the other spouse is in need of nursing-home care and is seeking to qualify for Medicaid (immediate annuities can be treated as exempt asset in some states), for making lifetime payments to cover long term care needs, or [...]
Categories: immediate annuities, life annuity Tags: immediate annuity, lifetime income
Seniors Can Protect themselves from Declining Short Term Rates
Fixed annuities can be popular among seniors. They are easy to buy, you know exactly how long you must tie up your money, and the IRS will let you defer the income tax on the earnings. But one point that may have stopped you from investing in an annuity is that some traditional fixed annuities do not lock in the interest rate for the duration of the contract. This means that after the initial period, which is typically one year, the return that the annuity company pays could possibly go higher or lower each year thereafter. However, there is a type of annuity that fixes the return for the entire contract’s term. This way you will know exactly how much you’ll earn while you own the contract–see the fixed annuity calculator for a projection. CD-annuities (also known as multi-year guarantee annuities) provide level interest rates for the entire term so you won’t get any surprise notices during this time. You select the term, which generally ranges from three to ten years when you make the investment. At the end of the term, you will usually have a 30-day window to withdraw all or part of your money, or renew the contract [...]
Categories: annuity rates, fixed annnuities Tags: cd annuity, mutli-year guranatee
Pass-through Annuities Can Offer Competitive Returns
Many seniors purchase fixed annuities for potential safety, tax savings, and asset protection. In some cases, insurance companies will offer a higher interest rate for a limited time period to encourage those investments. But what happens after that time period ends? Other than the minimum rate guarantee, do you have any assurance that you will still get a good return? Pass-through annuities could possibly reduce that concern by limiting the amount of money the company makes on your investment. To achieve a basic understanding about how this works, let’s look at a hypothetical example (please note that this example is for illustration purposes only and is not based upon the performance of any particular annuity product). Say you bought a fixed annuity that had the traditional method of crediting interest. If the first year’s rate included a 5% bonus, plus the 3% minimum, you could be looking at 8%. And you might think that’s pretty good. Then year two rolls around and it’s time for rate renewal. The annuity company might only be contractually required to the minimum interest rate, even if they earned more than that on your premium payments. With a pass-through annuity you can potentially achieve a [...]
Categories: fixed annnuities Tags: pass-through annuity
Index Annuity
When the markets are volatile and the interest rates low, investors turn to relative safer investment options such as an index annuity. Let us quickly try to understand the term and what are the advantages and disadvantages of investing in this kind of an investment vehicle. An Index annuity is an investment vehicle which is closely linked to some leading index such as the S&P 500. If the stocks rise then investors benefit from the rise in stock prices. If the stock markets fall, investors are safeguarded against the falling stocks which assure a minimum return of 3%. This is the biggest advantage of an index annuity. While on one hand an investor gains from rising stocks a falling market does not erode the base capital and still ensures a small return. Financial institutions which have annuity products make their money from the spreads. In a rising market they make more profits than what is passed down to the investor. The profits so accrued during a bull market are used to compensate investors during a bear phase. The index annuity is a relatively newer product in the annuity space. Earlier annuity products only varied around variable equities and fixed annuities [...]
Categories: equity indexed annuity Tags: index annuity
Fixed Immediate Annuities Can Offer Flexibility for Your Future
Stability and safety are important to many seniors, and these are only two of the reasons why immediate annuities are popular investments. A check arrives every month and part of the income is considered a tax-free return of your principal. As long as the annuity company is financially sound, the payments will continue for the life of the contract (annuities are guaranteed by the claims-paying ability of the issuing company). However, consumers sometimes believe that immediate annuities are illiquid, irreversible investments, and cannot provide for future lifestyle changes. Nonetheless, there are some immediate annuities with options that may add flexibility to your financial plan. Immediate annuities can possibly include an option that would allow you to receive extra cash at specific anniversary dates. For example, this might be at the 5th, 10th, or 15th anniversary of your investment. Exercising this option will reduce your future payments (the distribution may be fully taxable, so consult with your tax professional). Suppose you needed money to cover an emergency, like paying for caregivers or a home repair. Some annuity companies will let you take up to six payments at once. You would not, however, receive checks for the following six months (payments may [...]
Categories: fixed annnuities, immediate annuities Tags: fixed immediate annuities
Annuity Rate
An annuity is an investment which an individual makes to ensure a lifetime income. There are different types of annuities. These are Indexed annuity, variable annuity, fixed annuity, immediate annuity, deferred annuity and retirement annuity. Equity Indexed annuities grow depending upon the performance of an underlying stock market index. It is a good source of investment if the stock market is in an upward cycle. In an indexed annuity the principal is guaranteed and the profits are locked in. As a result investors do not lose their money. The annualized rate of return for these kinds of products can be anything between 5% to 9%. The best time to invest is when the stock market is depressed. A variable annuity allows an investor to grow investments in portfolios. This is one of the most preferred methods of annuity investments because the money is invested in conservative stocks and the payments are tax deferred. Investors can choose the method of payouts. The expected rate of return for variable annuity is 8% to 10% assuming equity accounts are selected. Fixed income annuities come with a time frame of 5 to 15 years. This type of annuity is more suited for conservative investors to ensure that [...]
Categories: annuity rates Tags: annuity basics, annuity rates, types of annuities
Annuity Companies
Anybody looking to invest in an annuity, be it an index linked annuity or otherwise, would be well advised to shop around before choosing which annuity company to place his or her investment with. The market is a thriving and busy area, and there are many hundreds of annuity companies to choose from, so how does one go about such an arduous and ultimately important task? How to choose Firstly, it is important that you know which type of annuity you require, what you expect to gain from the investment, and when. In many cases, those with private pensions will be contacted by their pension supplier once their pension kicks into action, or matures. It is always a worthy consideration to take out an annuity at this point – especially if one has retired earlier than the set age – as investing some of that pension can provide an ongoing extra income in later years. However, it is also important not to simply tick the ‘yes’ box on your pension providers’ mail, as they may not be the best available annuity for you. A quick search on an Internet search engine will produce a list of many providers of annuities, [...]
Categories: buy annuity Tags: annuity companies
