Kfs immediate annuities
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  • 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 providing legal,accounting, financial or other professional services. This report should not be used as a substitute for the professional advice of anattorney, accountant, or other qualified professional.Guaranteeingan Income for LifeAn Immediate FixedIncome Annuity Review1a2-16
  • 2. Your Earning Power2Guaranteeing an Income for Life: An Immediate Fixed Income 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 can you replace your incomeafter retirement?What steps can you taketo guarantee that yourretirement savingswill produce a stream ofincome that you cannotoutlive?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. Failing to Plan3Guaranteeing an Income for Life: An Immediate Fixed Income Annuity ReviewThey Simply Fail to Plan and Set Goals.The fact is that,once retirement is reached, it does not matter how much you earned during yourworking years.What does matter is how much money you have saved and accumulated, as well aswhat you choose to do with those funds during retirement.The biggest financial risk that anyone faces during retirement is the risk that savingswill be depleted... the risk that income will be outlived!Most People Do Not Plan to Fail.
  • 4. How Long Can You Expect to Live After Retirement?4Guaranteeing an Income for Life: An Immediate Fixed Income Annuity ReviewAdvances in medical science and healthier lifestyles have resulted in longer life expectancies.With longer life expectancies,however, comes theincreased risk of outliving yourretirement income!Source: Commissioners Standard Ordinary Mortality Table; based on composite data (combination of smokers, non-smokers andsmoking status unknown); age nearest birthday, 2001Current Age: Life Expectancy (in years):men women60 20.64 24.0862 19.06 22.4764 17.54 20.9066 16.08 19.3668 14.68 17.8670 13.32 16.4072 12.01 14.9974 10.78 13.64
  • 5. How Long Will Your Savings Last After Retirement?5Guaranteeing an Income for Life: An Immediate Fixed Income Annuity ReviewIf we knew exactly how long we were going to live after retirement, this arrangement might besatisfactory. The reality, of course, is that none of us knows how long we will live after retirement. Thisuncertainty is what makes it so difficult to avoid the risk of outliving retirement income.If You Withdraw Both Principal and Interest,How Long Will It Take to Exhaust a $250,000 Retirement Savings Fund?Rate of Return Amount Withdrawn at the Beginning of Each Month:$2,500 $5,000 $7,5004%121 monthly payments(10 years, 1 month)54 monthly payments(4 years, 6 months)35 monthly payments(2 years, 11 months)6%137 monthly payments(11 years, 5 months)57 monthly payments(4 years, 9 months)36 monthly payments(3 years)8%163 monthly payments(13 years, 7 months)60 monthly payments(5 years)37 monthly payments(3 years, 1 month)10%211 monthly payments(17 years, 7 months)64 monthly payments(5 years, 4 months)38 monthly payments(3 years, 2 months)
  • 6. A Potential Solution Using a Fixed Income Annuity6Guaranteeing an Income for Life: An Immediate Fixed Income Annuity Review* Guarantee is based on the continued claims-paying ability of theissuing insurance company.Heres How anIncome AnnuityWorks: The annuitant pays a single premium to an insurance company.Beginning immediately or shortly after the single premium is paid, theinsurance company pays the annuitant an income guaranteed* tocontinue for as long as the annuitant is alive, assuming the annuitantselects a life income option. There are other payout options alsoavailable.The insurance companypays survivor benefits, ifany, to the annuitant’sdesignated beneficiaryafter the annuitant’sdeath.Annuitant InsuranceCompanyBeneficiaryPays a Stream of IncomeMakes a Single PaymentPaysAnySurvivorBenefitsThe purpose of an annuity is to protect against the financialrisk of living too long... the risk of outliving retirementincome... by providing an income guaranteed* for life.In fact, an annuity is the ONLY financialvehicle that can systematicallyliquidate a sum of money in such a waythat income can be guaranteed* for aslong as you live!
  • 7. Income Annuity Payout Options7Guaranteeing an Income for Life: An Immediate Fixed Income 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.The income from an income annuity can be structured in a variety of ways, enabling you to selectthe payout option that best satisfies your unique needs. The most frequently-selected annuitypayout options guarantee* an income that cannot be outlived: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 designated 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 designated beneficiary receives thebalance of the payments, up to the refund guarantee* amount.
  • 8. Income Annuity Payout Options8Guaranteeing an Income for Life: An Immediate Fixed Income 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.Flexibility While these are the four basic annuity payout options most commonly selected,some income annuity contracts offer additional flexibility… ask your licensedfinancial adviser about contract features that may add flexibility to your use of anannuity to provide retirement income.
  • 9. Income Annuity Taxation9Guaranteeing an Income for Life: An Immediate Fixed Income Annuity ReviewIncome TaxationIncome tax treatment depends on whether the money used to purchase the income annuity camefrom "qualified" savings, such as IRAs or 401(k) plans, or from "non-qualified" savings, such aspersonal savings and investments, an inheritance, life insurance proceeds, sale of a businessinterest, etc.QualifiedSavingsSince money in a qualified plan generally has not been previously taxed, thefull amount of each annuity income payment typically will be subject toordinary income tax as received.If a portion of the qualified savings used to purchase the income annuity hasalready been taxed, that amount is returned in equal income-tax-free amountsover the expected payment period (based on the annuitants life expectancy).continued on next slide
  • 10. Income Annuity Taxation10Guaranteeing an Income for Life: An Immediate Fixed Income Annuity ReviewEstate TaxationAt 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 on income annuitytaxation in your situation.Non-QualifiedSavingsThe annuity purchase price is returned in equal income-tax-free amounts over theexpected payment period (based on the annuitant’s life expectancy).The portion of each payment in excess of the tax-free return of the purchase price istaxable in the year received.In summary, a portion of each annuity payment is received income tax free until theinvestment in the contract is recovered and the balance is taxable as received.
  • 11. Fixed Income Annuity Checklist11Guaranteeing an Income for Life: An Immediate Fixed Income Annuity ReviewAn annual maintenance fee (e.g., $30); and/orMortality or insurance charges for death benefit features.The annuity fees and expenses an insurance company charges can include:Fees and ExpensesPremium charges deducted when premiums are paid;Once you decide that a fixed income annuity is right for you, there are a number of factors youshould consider in evaluating the specific annuity you will purchase. These include:Carefully evaluate fees and expenses, since they will impact the amount of annuity income youreceive.continued on next slide
  • 12. Fixed Income Annuity Checklist12Guaranteeing an Income for Life: An Immediate Fixed Income Annuity ReviewSince an annuity is an insurancecontract, you need to be able tocount on the financial strength andclaims-paying ability of theinsurance company from which youpurchase an income annuity.Ask for company rating informationfrom respected sources, such asA.M. Best, Moodys or Standard &Poors, before purchasing an incomeannuity.Insurance Company Ratingsthe annuity income options available;the right to terminate the income annuity within aspecific time period and receive the value of theundistributed annuity payments;Make sure you understand the terms and limitations ofthe annuity contract before you purchase it, including:Annuity Featuresthe annuity income amount and frequency guaranteedby the contract;how any death benefit is determined.