Kfs annuity review
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Kfs annuity review Presentation Transcript

  • 1. © 2013 VSA, LP Valid only if used prior to January 1, 2014. The information, general principles and conclusions presented in thisreport are subject to local, state and federal laws and regulations, court cases and any revisions of same. While every care hasbeen taken in the preparation of this report, neither VSA, L.P. nor The National Underwriter is engaged in providinglegal, accounting, financial or other professional services. This report should not be used as a substitute for the professional adviceof an attorney, accountant, or other qualified professional.Accumulating Fundsin an AnnuityA Deferred Fixed Interestand Indexed Annuity Review1a2-15
  • 2. Your Earning Power2Accumulating Funds in an Annuity: A Deferred Fixed Interest and Indexed Annuity ReviewYour ability to earn an income is your most valuable asset.$ 50,000 $ 100,000 $ 250,000 $ 500,000$ 2,000,000 $ 4,000,000 $ 10,000,000 $ 20,000,000$ 1,500,000 $ 3,000,000 $ 7,500,000 $ 15,000,000$ 1,000,000 $ 2,000,000 $ 5,000,000 $ 10,000,000$ 500,000 $ 1,000,000 $ 2,500,000 $ 5,000,000$ 250,000 $ 500,000 $ 1,250,000 $ 2,500,000Your Future Earning PowerIf Your Family Income Averages:Years toAge 65:403020105How much of this money will beavailable to you when you retire?What steps can you taketo maximize the returnon your retirementsavings?Few people realize that a 30-year-old couple willearn 3.5 million dollars by age 65 if their totalfamily income averages $100,000 for their entirecareers, without any raises.Your IncomeSpouse’s IncomeOther IncomeInvestment Income
  • 3. Sources of Retirement Income3Accumulating Funds in an Annuity: A Deferred Fixed Interest and Indexed Annuity ReviewWhen you retire and your earning power ceases, you will have to depend on three primary sources foryour retirement income:Social SecurityEmployer-Provided PlansPersonal Retirement SavingsAccording to the Social Security Administration, the average retired worker in 2013receives an estimated $1,261 monthly benefit, about 40% of average pre-retirement income. As pre-retirement income increases, however, the percentagereplaced by Social Security declines.You may be eligible to participate in a retirement plan established by youremployer and receive pension income at your retirement.For many people, there is a gap between the retirement incomethey can expect from Social Security and employer-providedplans and their retirement income objectives. Personalretirement savings represent the only way to bridge that gap!If sufficient retirement incomeis not available, will you deferyour retirement age, or willyou choose to reduce yourstandard of living?According to statistics compiled by the Congressional Committee On Aging, however, Social Security andpension benefits combined account for less than half of the average retiree’s pre-retirement income.That leaves the third source of retirement income to account for the other half:
  • 4. What Are the Obstacles to Successful Retirement Planning?4Accumulating Funds in an Annuity: A Deferred Fixed Interest and Indexed Annuity ReviewDiscipline toSaveMany people find it difficult to form the habit of “paying themselves first,” bymaking regular deposits to a savings plan.Saving to Spend Money is saved for retirement purposes, but then is spent to make purchases.There are a number of obstacles that you may face in planning for your retirement:Income Taxes Income taxes can erode the growth of your retirement savings.Longer LifeExpectanciesLonger life expectancies increase the risk of retirees outliving at least a portion oftheir retirement income.Inflation Longer life expectancies also increase the risk of inflation eroding the purchasingpower of retirement income. For example, if inflation increases at 3.5% a year, itwould require over $1,400 in 10 years in order to maintain the original purchasingpower of $1,000.Since Social Security and your company pensionplan probably will not provide the income youneed for a financially-secure retirement,how can you overcome the obstacles you facein planning for retirement?
  • 5. A Potential Solution Using a Deferred Annuity5Accumulating Funds in an Annuity: A Deferred Fixed Interest and Indexed Annuity ReviewDiscipline toSaveRegularly-scheduled payments to a deferred annuity can help to form the “savingshabit.”Saving to Spend A deferred annuity is designed to satisfy longer-term financial needs, such asretirement. Withdrawals of earnings before age 59-1/2 are subject to income taxand a 10% penalty tax. Also, the insurer may charge a surrender penalty for earlywithdrawal or surrender.A deferred fixed annuity can assist you in overcoming the retirement planning obstaclesyou may face:Income Taxes Earnings on money contributed to a deferred annuity grow on a tax-deferred basis.Longer LifeExpectanciesAt retirement, the funds accumulated in a deferred annuity can be converted intoan income that cannot be outlived. The portion of each annuity paymentrepresenting earnings on annuity premiums is subject to income tax as received.Inflation A flexible premium deferred annuity allows you to increase your contributions asyour income grows. In addition, an indexed deferred annuity offers some potentialto keep pace with inflation.
  • 6. What Is an Annuity?6Accumulating Funds in an Annuity: A Deferred Fixed Interest and Indexed Annuity ReviewAn annuity is a long-term savings plan that can be used to accumulate assets on a tax-deferred basis for retirement and/or to convert retirement assets into a stream of income.If you are already contributing the maximum to an IRA and/or an employer-sponsored retirement plan, an annuity can be an excellent way to save for financialsecurity in retirement.While both are insurance contracts, an annuity is the opposite of life insurance:Life Insurance Provides financial protection against the risk of dying prematurely.An Annuity Provides financial protection against the risk of living too long andbeing without income during retirement.
  • 7. A Deferred Fixed Annuity in Action7Accumulating Funds in an Annuity: A Deferred Fixed Interest and Indexed Annuity Review* Guarantee is based on the continued claims-paying ability of theissuing insurance company. Annuities are not insured or guaranteedby the FDIC or any other government agency.Heres How aDeferred FixedAnnuity Works:During the accumulation phase prior to retirement, the annuitant makes a singlepremium payment or periodic premium payments to an insurance company. If earlywithdrawals are taken, they may be subject to surrender charges (contingent deferredsales charges). Withdrawals also may be subject to ordinary income tax and, if takenprior to age 59-1/2, a 10% federal tax penalty may apply.At retirement, the annuitant selects an annuity income option and theinsurance company pays the annuitant a stream of income. If, forexample, the annuitant selects a life income annuity option, theannuitant receives a guaranteed* income from the annuity for as longas he or she is alive. The portion of each annuity paymentrepresenting earnings on annuity premiums is subject to income tax asreceived.If the annuitant diesduring the accumulationphase, the insurancecompany pays theaccumulated value of thedeferred annuity to theannuitant’s designatedbeneficiary. If theannuitant dies during theincome phase, there maybe survivor benefitspayable to theannuitant’s designatedbeneficiary, depending onthe annuity incomeoption selected.Annuitant InsuranceCompanyBeneficiaryPays a Stream of Income During theIncome PhaseMakes Premium Payments During theAccumulation PhasePaysAnySurvivorBenefits
  • 8. The Power of Tax-Deferred Annuity Growth8Accumulating Funds in an Annuity: A Deferred Fixed Interest and Indexed Annuity ReviewThe tax-deferred growth feature of adeferred annuity can produce results thatare superior to those of a savings planwhose growth is taxed each year.* This is a hypothetical illustration only and is notindicative of any particular investment or investmentperformance. In the case of Tax-Deferred Annuity, itdoes not reflect the mortality and expensecharges, sales charges and administrative fees typicallyassociated with any particular investment, and in thecase of Taxable Savings, it does not reflect the fees andexpenses associated with any particular investment.These would reduce the performance shown in thishypothetical illustration if they were included. Inaddition, rates of return will vary over time, particularlyfor long-term investments.20 Year Results - 8% Hypothetical Annual Rate ofReturn/ $2,000 Annual Contribution After Taxes/25% Income Tax Bracket *Tax-Deferred Growth 1 Growth Taxed21 If the annuity is surrendered at the end of the 20thyear, the principal amount remaining after payment ofincome taxes is $84,134 at a 25% rate. Withdrawalsfrom or surrender of an annuity prior to age 59-1/2 aresubject to a 10% tax penalty.2 Calculations assume the income tax is paid out ofearnings each year.(25% tax bracket)Before purchasing a variable annuity, carefully consider thecontract and the underlying funds investment objectives,risks, charges and expenses. Both the contract prospectusand the underlying fund prospectuses contain this and otherimportant information. You should read them carefully beforepurchasing a variable annuity contract.
  • 9. Types of Deferred Fixed Annuities9Accumulating Funds in an Annuity: A Deferred Fixed Interest and Indexed Annuity ReviewA fixed interest annuity pays a fixed rate of interest on the premiums invested in thecontract, less any applicable charges.The insurance company guarantees* that it will pay a minimum interest rate for the life of theannuity contract.A company may also pay an "excess" or bonus interest rate, which is guaranteed* for a shorterperiod, such as one year.During the income phase of a fixed annuity, the amount of each income payment is alevel, guaranteed* amount.Fixed Interest Annuities* Guarantee is based on the continued claims-paying ability of the issuing insurance company.continued on next slide
  • 10. Types of Deferred Fixed Annuities10Accumulating Funds in an Annuity: A Deferred Fixed Interest and Indexed Annuity ReviewAn indexed annuity has characteristics of both a fixed interest annuity and a variable annuity.Similar to a variable annuity, the insurance company pays a rate of return on annuity premiumsthat is tied to a stock market index, such as the Standard & Poors 500 Composite Stock PriceIndex.Similar to fixed interest annuities, indexed annuities also provide a minimum guaranteed interestrate*, meaning that they have less market risk than variable annuities. An investment in anindexed annuity is not a stock market investment. Instead, the rate of return is linked to theperformance of a market index that tracks the performance of a specific group of stocks. Sincethe minimum guaranteed interest rate is combined with this interest rate linked to a marketindex, indexed annuities have the potential to earn returns better than fixed interest annuitieswhen the stock market is rising.You could, however, lose money on your investment if the issuing company does not guarantee100% of the principal and you receive no index-linked interest due to a decline in the marketindex linked to your annuity, or if you surrender your indexed annuity while a surrender charge isin effect.Indexed Annuities* Guarantee is based on the continued claims-paying ability of the issuing insurance company.
  • 11. Deferred Fixed Annuity Suitability11Accumulating Funds in an Annuity: A Deferred Fixed Interest and Indexed Annuity ReviewFirst of all, a deferred fixed 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/oremployer-sponsored retirement plan, a deferred fixed annuity might be right for you.But which type of deferred fixed annuity? The answer to that question depends primarily on yourinvestment objectives and risk tolerance.may be best suitedfor individualswho:Fixed interestdeferred annuitiesPrefer to rely on fixed rates of returnFocus on preservation of assetsWant protection from market volatilityPrefer to delegate investment decisionsand risks to the insurance companyUnderstand that a fixed rate of return maynot provide a good hedge against inflationIndexed deferredannuitiesAre adverse to riskUnderstand that a rate of return linked to stock marketperformance provides the potential for higher returnsthan fixed interest investments, together with the riskof losing money if the issuing company does notguarantee 100% of the principal and no index-linkedinterest is credited, or if the indexed annuity issurrendered while a surrender charge is in effectPrefer to delegate investment decisions to othersWant less market risk than with a variable annuitymay be best suitedfor individualswho:
  • 12. Annuity Income Options12Accumulating Funds in an Annuity: A Deferred Fixed Interest and Indexed Annuity ReviewLife IncomeOptionPayments are made for as long as the annuitant is alive.Payments cease at the annuitant’s death.This option produces the maximum guaranteed* lifetime income.At retirement, annuity income can be structured in a variety of ways, enabling you to select the incomeoption that best satisfies your unique needs. While you can surrender a deferred annuity and receive alump-sum payment equal to the annuity value, many people elect to convert the annuity value into astream of retirement income using one of these income options:continued on next slide* All guarantees are based on the claims-paying ability of the issuing insurance company.Life Income withPeriod CertainOptionPayments are made for as long as the annuitant is alive.If the annuitant dies before a specified number of payments have been received(e.g., 120 monthly payments), the remaining payments in the period certain aremade to the beneficiary.Life Income withRefundGuaranteeOptionPayments are made for as long as the annuitant is alive.If the annuitant dies before payments equal to all or a specified portion of thepurchase price have been received, the beneficiary receives the balance of thepayments, up to the refund guarantee* amount.
  • 13. Annuity Income Options13Accumulating Funds in an Annuity: A Deferred Fixed Interest and Indexed Annuity ReviewJoint-and-Survivor OptionThis payout option covers two lives.The same payment can be received for as long as either of the two annuitants isalive or, alternatively, at the death of the first annuitant, the payment to thesurviving annuitant can be structured to reduce to a specified percentage(e.g., 75%) of the payment received while both annuitants were alive.A joint-and-survivor payout can also include a period certain feature.* All guarantees are based on the claims-paying ability of the issuing insurance company.Period CertainOption(no guarantee oflifetime income)Payments are made for a specified number of years, such as 10 years or 20 years.Payments cease at the end of the period certain.If annuitant dies before receiving all guaranteed* payments, the beneficiary willreceive the remaining payments.Flexibility While these are the five basic annuity income options, some annuity contractsoffer additional flexibility…ask your licensed financial adviser about contractfeatures that may add flexibility to your use of an annuity to provide retirementincome.
  • 14. Non-Qualified Deferred Fixed Annuity Taxation14Accumulating Funds in an Annuity: A Deferred Fixed Interest and Indexed Annuity Reviewcontinued on next slideDuring the Accumulation Phase:Earnings credited on the funds in a deferred fixed annuity are tax deferred, meaning that theearnings are not taxed while they remain in the annuity.Withdrawals from a deferred fixed annuity during the accumulation phase are treated aswithdrawals of earnings to the extent that the cash value of the annuity exceeds the totalpremiums paid and are taxed as income in the year withdrawn. To the extent that awithdrawal exceeds any earnings, that portion of the withdrawal is considered a non-taxablereturn of principal.In addition, a 10% penalty tax may be imposed on withdrawals made before age 59-1/2, unlesscertain conditions are met. The penalty tax is in addition to the regular income tax on thewithdrawal.If the annuitant dies during the accumulation phase, the value of the deferred fixed annuity isgenerally included in the annuitant’s estate, to the extent of the deceased annuitant’sproportional contribution to the annuity purchase price.
  • 15. Non-Qualified Deferred Fixed Annuity Taxation15Accumulating Funds in an Annuity: A Deferred Fixed Interest and Indexed Annuity ReviewDuring the Income Phase:The annuity purchase price is returned in equal income-tax-free amounts over the expectedpayment period (based on the annuitant’s life expectancy).The portion of each payment in excess of the tax-free return of the purchase price is taxable inthe year received.In summary, a portion of each annuity payment is received income tax free and the balance istaxable as received.At the annuitant’s death, the present value of any remaining annuity payments due is generallyincluded in the annuitant’s estate, to the extent of the deceased annuitant’s proportionalcontribution to the annuity purchase price.A professional tax advisor should be consulted for more detailed information onannuity taxation in your situation.
  • 16. Deferred Fixed Annuity Checklist16Accumulating Funds in an Annuity: A Deferred Fixed Interest and Indexed Annuity ReviewAn annual maintenance fee (e.g., $30);Mortality or insurance charges for death benefit features; and/orThe annuity fees and expenses an insurance company charges can include:Fees and ExpensesPremium charges deducted when premiums are paid;Once you decide that a deferred fixed annuity is right for you, there are a number of factors youshould consider in evaluating the specific annuity you will purchase. These include:Surrender charges assessed when the annuity is surrendered or withdrawals are made in theearly years of the contract.Carefully evaluate fees and expenses, since they will impact the amount of money ultimatelyavailable in the annuity.continued on next slide
  • 17. Deferred Fixed Annuity Checklist17Accumulating Funds in an Annuity: A Deferred Fixed Interest and Indexed Annuity ReviewSince an annuity is an insurancecontract, you need to be able to counton the financial strength and claims-paying ability of the insurancecompany from which you purchase anannuity.Ask for company rating informationfrom respected sources, such as A.M.Best, Moodys or Standard &Poors, before purchasing an annuity.Insurance Company Ratingsin the case of a indexed annuity, how amounts credited tothe annuity contract are determined;Make sure you understand the terms and limitations of theannuity contract before you purchase it, including:Annuity FeaturesIn the case of a fixed interest annuity, the current interestrate being credited, how often it changes and theminimum interest rate guaranteed by the contract;the withdrawal and surrender options;how the death benefit is determined and paid;the income payout options available.