Creditor Protection and Other Protection of Fixed Annuities
What Protections Does a Fixed Annuity Offer? Asset protection is an important consideration when deciding on retirement investments. One investment of particular interest to retirees is the fixed annuity. Annuities are geared to protect you from running out of income while you’re living. But because a fixed annuity is an insurance product, it has special protections afforded insurance over the years. So, beyond protecting a lifetime income for you let’s, summarize some other protections that a fixed annuity offers you. While you’re living, a fixed annuity offers you 3 protections. They are protection from · Market fluctuations: Because fixed annuities offer guarantee of principal and an interest. You’re protected from the loss in principal and earnings that stock and bond market investments are vulnerable to. · Current taxation of annuity earnings: Since fixed annuity earnings are tax-deferred, they’re not reported on your tax forms. This keeps your fixed annuity investment off your tax records until you withdraw money from them. This affords you a privacy feature. · Lawsuits: Annuities are generally[1] not liable to attachment or garnishment in favor of any creditor of the person insured under the contract,. i.e. annuities offer creditor protection Because your annuity is a contract [...]
Categories: creditor protection Tags: creditor protection annuities, prospectmatch
Ladder Annuities for Potentially More Income
If you’re 70 and living off your income from a Certificate of Deposit (CD) you may find it more advantageous to switch to a laddered annuities for more income. Let’s consider how. A $100,000 5yr-CD paying 5% gives you an annual taxable income of $5,000. At a 25% income tax rate, you’re left with $3,500. Of course you’re also left with your $100,000 too. But if you need more income, and you don’t want to get locked into any current income rate, you may consider investing your $100,000 into a set of annuities. Laddering these (i.e. stagger when begins its income stream) allows you to follow income rates if they go up (or down). Laddered Annuities Option We’ll assume you’re 70; and with your $100,000, you buy 5 annuities each for a single premium of $20,000. The first will be a Single Premium Immediate Annuity (SPIA) for a 5 year payout term. The four others will be Single Premium Deferred Annuities (SPDA) geared to produce a payout after 5, 10, 15, and 20 years respectively. Let’s consider what sort of income you’d generate in this case. Refer to the table. These are hypothetical examples and all fees have been ignored (immediate annuities [...]
Categories: annuity ladder Tags: ladder annuities, prospectmatch
Die Broke
How Do I Organize My Money to Spend My Last Dollar the Day I Die? asked the investor And the advisor said, “That’s no problem, Sir. What day will that be?” Not knowing when we’ll die means making sure we arrange our finances to produce income for as long as we live. Aside from being able to live off just the earnings of our investments, only social security, pensions and annuities can pay you a lifetime income. We would all like to have jut enough money to last until our last day and die broke. While that seems like a wild idea, it’s doable. Social Security gives you a lifetime income because the government can compel taxpayers to pay for it. And, if things get tight, they can print the money necessary to pay you. And it stops the day you die. If you do get a pension, it’s likely being paid by an insurance company in the form of an annuity. As long as the insurance company remains solvent (large companies such as Prudential and New York LIfe lent money to the federal government during the Depression), you receive income for life that stops the day you die. If you like that idea, making [...]
Categories: annuitization, immediate annuities Tags: die broke, prospectmatch
Tax Consequences to the Annuity Beneficiary
Annuities are especially attractive to retirees because they assure an income for life. They’re often held as deferred annuities as a back up for those later retirement years as a supplement to other retirement income or when savings become depleted. But many retirees will die before tapping their deferred annuity. What are the tax consequences to the annuity beneficiary and should other options be arranged? A deferred annuity offers a distinct tax-benefit. It’s earning grow tax-deferred. For the same annual return as a taxable investment, a tax-deferred investment compounds faster because none of the earnings are taxed away each year. However those tax-deferred earnings will eventually be taxed upon withdrawal, whether by you or the annuity beneficiary. Your contributions to the annuity, though, will not be taxed. This is the case in ‘nonqualified’ annuities which are funded with after tax contributions. Annuitant’s taxation If a partial withdrawal is made, the IRS presumes that earnings come out first – so that these are completely taxable. But under regular monthly payments – a portion of each payment is not taxed but treated as a return of your nontaxable contributions. An exclusion ratio calculated by the insurance company designates that untaxed portion. When, [...]
Categories: annuity beneficiary, annuity taxation Tags: annuity beneficary, annuity taxation, prospectmatch
Provide for Your Beneficiary Survivor with a Reversionary Annuity
When couples are in their retirement, circumstance may arise where a wife is in jeopardy of losing a living income when her husband dies. Perhaps the husband – before a late marriage – had opted for a ‘single life’ payout for his pension or annuity. Or, perhaps a 50% reduction of his pension payout for his wife just won’t be enough. How can one spouse assure an adequate income for his surviving spouse when a pension or Social Security benefit is involved? Normally, you might say, ‘just go out and buy life insurance on the husband’s life so the wife can live off the death benefit’. But buying permanent life insurance may be too expensive for a retiree. And then there’s the issue about whether or not the wife can manage it to maintain an income for her life. A reversionary annuity as an alternative A reversionary annuity would supply an immediate annuity payout for the life of the wife at the death of the husband. The funding for the ‘immediate annuity’ comes from the life insurance death benefit associated with the husband’s reversionary annuity premium payments. The reversionary annuity is similar to a combination of term life insurance policy, a [...]
Categories: reversionary annuity Tags: prospectmatch, reversionary annuity
Might You Live to 100?
Live to 100. Sounds great. But what are the downsides of longevity? “How can there be downsides?” you may ask. After all, you’d have more time to golf, go fishing, and spend with the grand-kids. Well, the risk may be that if you hadn’t planned to live that long you could end up running out of money. Very few people have sufficient retirement savings to live to 100. Yet, if you are already age 70, life expectancy of living to age 100 is 3% (one of every 33 people). If you make it to age 80, then your life expectancy to 100 jumps to 4% (one out of 25 people). So how long of a retirement should you plan for? How can you prepare for significant longevity? According to the IRS longevity tables, a 70-year-old person is expected to live for 17 more years to age 87. However, this is an average. Half of the 70-year-olds will live longer, and half will not. Therefore, a 70-year old individual who is basing his or her retirement plan and spending habits on living to 87 is rolling the dice. Furthermore, when you consider that there are more than 70,000 U.S. centenarians who represent the fastest-growing segment [...]
Categories: immediate annuity, longevity, reverse mortgage Tags: fixed annuity, life expectancy, longevity, prospectmatch, reverse mortgage
Poor Health Can Be a Factor in Producing More Retirement Income
There’s a type of annuity that pays you more if your health profile is not good. This may sound strange, but here’s how it works: SPIA, which stands for Single Premium Immediate Annuity (also referred to as health adjusted immediate annuity), has long been a popular investment for obtaining a fixed income which cannot be outlived (income for life). With the income for life option, the issuing insurance company calculates the size of your monthly payment based on standard life expectancy tables, based on an analysis of your health. Once calculated at the beginning, you continue to receive the same monthly amount, regardless of how long you live. It’s almost like getting a second social security check. companies take into account your individual health condition and use that information to calculate your life expectancy. If your health records indicate conditions that could lower your life expectancy, this is factored into the monthly payment you receive and increases the monthly payment. You then receive this fixed monthly amount no matter how long you live.| Take this hypothetical example. A man age 70 decides to obtain a SPIA. He deposits a $100,000 premium and based on his standard life expectancy of 16 years, his [...]
Categories: lifetime income Tags: health adjusted immediate annuity, lifetime income, prospectmatch
Keep Pace With Inflation in your Life Annuity
For millions of Americans, a life annuity can provide safety of principal and tax deferral. However, one disadvantage inherent in most life annuities is their inability to keep up with inflation over the long-term. For example, assume that you invest $100,000 into a single premium immediate life annuity. as an example, a current contract from a major annuity company would then pay out $658.59 per month, for a total of $7,903.08 for the year. The problem is if the rate of inflation is 3%, then the purchasing power of these payments will decline from one year to the next. Obviously, $7,903 will not buy in a future year what it can now. Imagine how you feel twenty years from now when the purchasing power of your life annuity is reduced by 47%! One way that life annuity buyers can deal with this problem is to purchase a cost-of-living rider in the contract. This rider is designed to ensure that the income from the annuity stays abreast of the rate of inflation over time. However, these will be a trade off in that less income may be received today. For example, the same immediate life annuity contract with a 3% inflation [...]
Categories: life annuity Tags: cola rider, cost of living, inflation, life annuity, prospectmatch
Annuity Taxes of a Fixed Immediate Annuity
Fixed Immediate annuities can provide a steady income for a specified period of time that may even surpass your natural life. How long you choose to take these payments can depend on your present and future income needs, as well as your survivors’ requirements. But there is one more point that you may want to look at when reviewing the various payout options available, and that is the annuity tax implications to you and your beneficiaries. A portion of the money you would receive each year is a tax-free return of your investment. The balance is taxable, and those amounts can vary among the different payment periods. For instance, suppose that you are a 65-year old male, the IRS gives you a life expectancy of 20 years, and you are offered the following choices for a $250,000 investment: • A life only payout ceases when you die and will give you approximately $20,000 per year. Of this amount, $12,500 (1/20th of $250,000) would be tax-free and the balance ($7,500) taxable. If you live longer than 20 years, all $20,000 will be taxable. • A life with 20-year certain pays for 20 years or your lifetime, whichever is longer. You would [...]
Categories: annuity taxation, annuity taxes Tags: annuity taxes, fixed immediate annuity, prospectmatch
