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Annuity Basics

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Annuity Basics is part of our continuing series of presentations for Financial Services Industry Training. We develop custom training specific to the financial services industry. Contact us for a …

Annuity Basics is part of our continuing series of presentations for Financial Services Industry Training. We develop custom training specific to the financial services industry. Contact us for a quote or discussion of your needs.

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  • 1. Financial Services Industry Training Annuities BasicsDate July 2012 Saunders Learning Group, LLC Saunders Learning Group, LLC, Andover, KS
  • 2. Training from Saunders Learning Group Saunders Learning Group provides a variety of training programs, workshops and seminars targeted to the financial services industry. Programs are available in a wide range of topics, and we are specialists in developing custom programs that are targeted to your needs. Contact the founder, Floyd Saunders at 316-680-6482 or at floyd@floydsaunders.com for more information. Saunders Learning Group, LLC, Andover, KS1
  • 3. Topics1. Annuity Defined2. Annuity Basics3. How Annuities Work4. Annuity Products5. Annuity Payments and Distributions Saunders Learning Group, LLC, Andover, KS Slide 2
  • 4. Module 1 Annuity DefinedSaunders Learning Group, LLCSaunders Learning Group, LLC, Andover, KS
  • 5. What is the meaning of annuity? An annuity a contract between two parties, called the insured and an insurance company. The insurance company agrees to pay the insured an agreed upon benefit either in the form of regular interval payments or in lump sum. Saunders Learning Group, LLC, Andover, KS
  • 6. What Annuity Means Annuities allow you to save on taxes and derive benefit on retirement. These accumulated funds are later repaid to you either for a fixed term, say 5 to 10 year, or for the rest part of your life. Annuities are quite similar to Certificates of deposits. CDs are offered by banks, similarly, insurance companies offer different returns on your Annuity investments. Saunders Learning Group, LLC, Andover, KS
  • 7. Who offers an Annuity? Annuities sold by Insurance companies by way of licensed agents. But before you chose to invest with the insurance company, you should check their insurance licenses. State and federal laws and insurance commissions govern the reserve funds, also known as State Legal Reserve Pools.How does an Annuity work? The insured makes a deposit with the insurance company either as a single payment or through regular small installments. Depending upon the type of annuity you choose, the money deposited with the insurance company will earn fixed or variable return. Saunders Learning Group, LLC, Andover, KS
  • 8. Different Types of Annuity Single Premium Immediate Annuity: The amount is paid in lump sum and the benefits are derived from the immediate next month onwards. Single Premium Deferred Annuity: Again, the amount is paid in lump sum but the withdrawals can be made only after specified time limit. Annual Premium Deferred Annuity: The premium paid to the insurance company is either in form of quarterly, or monthly or bi-annual or annual installments. Withdrawals are deferred to a later date. Variable Annuity: This is more of a combination annuity scheme where you can chose either to pay a lump sum amount or in installments. You can choose the investment vehicle as well. Thus, the growth of your fund depends on vehicle chosen. Saunders Learning Group, LLC, Andover, KS
  • 9. How An Annuity Works An annuity is a contract between you, the purchaser or owner, and an insurance company, the annuity issuer. In its simplest form, you pay money to an annuity issuer, and the issuer pays out the principal and earnings back to you or to a named beneficiary. Life insurance companies first developed annuities to provide income to individuals during their retirement years. Saunders Learning Group, LLC, Andover, KS
  • 10. Module 2 Annuity BasicsSaunders Learning Group, LLCSaunders Learning Group, LLC, Andover, KS
  • 11. Annuity Companies Saunders Learning Group, LLC, Andover, KS Slide 10
  • 12. Who buys Annuities Most annuities are purchased by people over 50 . Saunders Learning Group, LLC, Andover, KS Slide 11
  • 13. Tax Deferral One of the attractive aspects of an annuity is that its earnings are tax deferred until you begin to receive payments back from the annuity issuer. In this respect, an annuity is similar to a qualified retirement plan. Over a long period of time, your investment in an annuity can grow substantially larger than if you had invested money in a comparable taxable investment. Saunders Learning Group, LLC, Andover, KS
  • 14. Early Withdrawals and Taxes Like a qualified retirement plan, a 10 percent tax penalty may be imposed if you begin withdrawals from an annuity before age 59½. Unlike a qualified retirement plan, contributions to an annuity are not tax deductible, and taxes are paid only on the earnings when distributed. Saunders Learning Group, LLC, Andover, KS
  • 15. Benefits Associated With Annuities Tax Deferral: The money invested in an annuity grows tax free until the time you withdraw it. The age set for withdrawals is 59.5 years. Any funds withdrawn prior to this age bear an annual penalty charge of 10%. The insured gets a secured guaranteed return typically for life. An Annuity offers you a medium of saving, ensuring avoiding probate for your heirs, safety of funds and much more. Saunders Learning Group, LLC, Andover, KS
  • 16. Module 3 How Annuities WorkSaunders Learning Group, LLCSaunders Learning Group, LLC, Andover, KS
  • 17. Structure of Annuity1. Premiums are paid to annuity company2. Premiums are in company’s general account3. The General Account accumulates funds4. Fees and expenses are deducted5. Death benefits paid out (it applicable6. Withdrawals occur (6,7 & 8)9. Taxes are paid Saunders Learning Group, LLC, Andover, KS Slide 16
  • 18. Parties To An Annuity  There are four parties to an annuity contract: the annuity issuer, the owner (or Contract holder), the annuitant, and the beneficiary.  The annuity issuer is the company (e.g., an insurance company) that issues the annuity.  The owner is the individual or other entity who buys the annuity from the annuity issuer and makes the contributions to the annuity. Saunders Learning Group, LLC, Andover, KS
  • 19. Parties To An Annuity  The annuitant is entitled to receive benefits from an annuity.  The owner and the annuitant are usually the same person but do not have to be.  The beneficiary is the person who receives a death benefit from the annuity at the death of the annuitant. Saunders Learning Group, LLC, Andover, KS
  • 20. Annuity Phases Two distinct phases to an annuity  There are two distinct phases to an annuity: (1) the accumulation (or investment) phase and (2) the distribution phase.  The accumulation (or investment) phase is the time period when you add money to the annuity.  When using this option, youll have purchased a deferred annuity. Saunders Learning Group, LLC, Andover, KS
  • 21. Module 4 Annuities ProductsSaunders Learning Group, LLCSaunders Learning Group, LLC, Andover, KS
  • 22. Single Premium Deffered Annuity You can purchase the annuity in one lump sum (known as a single premium annuity), or you make investments periodically, over time. Saunders Learning Group, LLC, Andover, KS
  • 23. Immediate AnnuityIf you want to start receiving payments within the first year, youllpurchase an immediate annuity. You can elect to receive payments over both your lifetime and the lifetime of another person (known as a joint and survivor annuity). Under a joint and survivor annuity, the annuity issuer promises to pay you an amount of money on a periodic basis (e.g., monthly, quarterly, or yearly). Saunders Learning Group, LLC, Andover, KS
  • 24. Life Time Annuity If you are age 65 and elect to receive annuity distributions over your entire lifetime, the amount you will receive with each payment will be less than if you had elected to receive annuity distributions over five years. Saunders Learning Group, LLC, Andover, KS
  • 25. An Annuity As a Charitable Gift Assets in the form of an annuity can be transferred to a Charity You receives payments for your life Charity is designated as the beneficiary Saunders Learning Group, LLC, Andover, KS Slide 24
  • 26. Module 5 Annuities Distributions and PaymentsSaunders Learning Group, LLCSaunders Learning Group, LLC, Andover, KS
  • 27. Distribution Options The distribution phase is when you begin receiving distributions.  You have two options:  Under the first option, you can withdraw some or all of the money in the annuity in lump sums.  The second option (referred to as the guaranteed income or annuitization option) provides a guaranteed income stream for your entire lifetime (no matter how long you live) or for a specific period of time (e.g., 10 years). (Guarantees are based on the claims-paying ability of the issuing insurance company.) This option can be elected at any time on your deferred annuity. Saunders Learning Group, LLC, Andover, KS
  • 28. Annuity PaymentsThe amount you receive for eachpayment period will depend on: how much money you have in the annuity how earnings are credited to your account (whether fixed or variable) the age at which you begin the annuitization phase. The length of the distribution period will also affect how much you receive. Saunders Learning Group, LLC, Andover, KS
  • 29. Is Annuity For You? When is an annuity appropriate?  It is important to understand that annuities can be an excellent tool if you use them properly.  Annuities are not right for everyone.  Annuity contributions are not tax deductible.  Thats why most experts advise funding other retirement plans first. Saunders Learning Group, LLC, Andover, KS
  • 30. Annuity vs. other Retirement Plans If you have already contributed the maximum allowable amount to other available retirement plans, an annuity can be an excellent choice. There is no limit to how much you can invest in an annuity, and like other retirement plans, the funds are allowed to grow tax deferred until you begin taking distributions. An Annuity can fill any gap in your retirement plan. Saunders Learning Group, LLC, Andover, KS
  • 31. Annuity Summary  Annuities are designed to be very-long-term investment vehicles.  In most cases, youll pay a penalty for early withdrawals.  If you take a lump-sum distribution of your annuity funds within the first few years after purchasing your annuity, you may be subject to surrender charges imposed by the issuer.  As long as youre sure you wont need the money until at least age 59½, an annuity is worth considering.  If your needs are more short term, you should explore other options. Saunders Learning Group, LLC, Andover, KS
  • 32. Questions Saunders Learning Group, LLC, Andover, KS
  • 33. Thank You !Saunders Learning Group, LLCSaunders Learning Group, LLC, Andover, KS

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