Income For Life - Stratton & Company
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How can a retiree create income for life using annuities? This is the slide deck from our presentation. If you would like to attend in person, please contact us at (904) 425-0943.
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Income For Life - Stratton & Company
- 1. Welcome Creative Solutions for Your Long-Term Income Needs FocusOn® Income for Life (904) 425-0943 RetirementTeam.com
- 2. Workshop Objectives Introduce Educate Illustrate (904) 425-0943 RetirementTeam.com
- 3. Our Commitment Provide useful and applicable information Help you identify goals Offer no-obligation review The information provided in this presentation is not written or intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. (904) 425-0943 RetirementTeam.com
- 4. 18% Financial Challenges Only 18% of workers are very confident that they will have enough money for retirement. Source: 2014 Retirement Confidence Survey, Employee Benefit Research Institute (904) 425-0943 RetirementTeam.com
- 5. Income for Life 1. ANNUITIES FOR AN INCOME YOU CAN’T OUTLIVE 2. TAX CONSIDERATIONS 3. CASE STUDIES 4. IMPORTANT QUESTIONS (904) 425-0943 RetirementTeam.com
- 6. According to SSA.gov more than one in three 65 year olds today will live to be age 90 and more than one in seven will live to age 95. The information provided in this presentation is not written or intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. (904) 425-0943 RetirementTeam.com
- 7. Income You Can’t Outlive – The Annuity (904) 425-0943 RetirementTeam.com
- 8. What Is an Annuity? You Premiums Income Insurance company Insurance-based contract Option for lifetime income Tax-deferred accumulation (904) 425-0943 RetirementTeam.com
- 9. Types of Annuities Deferred annuity Immediate annuity (904) 425-0943 RetirementTeam.com
- 10. Fixed vs. Variable Annuity 3 IMPORTANT QUESTIONS
- 11. Fixed Indexed Annuities Must have fixed account Cannot credit negative interest Interest is based on performance of one or more indexes Account balance will not be reduced by negative interest (904) 425-0943 RetirementTeam.com
- 12. Fixed Indexed Annuities Preservation Accumulation Guaranteed income (904) 425-0943 RetirementTeam.com
- 13. Guaranteed Lifetime Income (904) 425-0943 RetirementTeam.com
- 14. Now it can. (904) 425-0943 RetirementTeam.com
- 15. 1. ANNUITIES FOR AN INCOME YOU CAN’T OUTLIVE 2. TAX CONSIDERATIONS 3. CASE STUDIES 4. IMPORTANT QUESTIONS Income for Life Stratton & Company does not provide tax and legal advice. You are encouraged to consult your tax advisor or attorney. (904) 425-0943 RetirementTeam.com
- 16. Tax-Deferred Compounding Earnings are not taxed until withdrawn Postponing taxes keeps more of your money working for you Stratton & Company does not provide tax and legal advice. You are encouraged to consult your tax advisor or attorney. (904) 425-0943 RetirementTeam.com
- 17. Taxable (28%) Tax-deferred fixed annuity Tax-deferred fixed annuity after taxes $202,763 30 years $123,825 $134,392 $153,327 $180,611 $189,857 $242,726 10 years 20 years $100,000 initial premium 3% rate of return 28% tax rate Annuities and Taxes This hypothetical example is used for illustrative purposes only and does not represent any specific investment or annuity. Annuities typically have mortality and expense charges, surrender charges for early withdrawals, and administrative fees. These fees and charges are not reflected in this example and would reduce the performance shown if they were included. Any guarantees are contingent on the claims-paying ability of the issuing company. (904) 425-0943 RetirementTeam.com
- 18. Penalties and Surrender Charges 10% federal income tax penalty on withdrawals taken prior to age 59½ Most annuities are subject to surrender charges in the early years of the contract (904) 425-0943 RetirementTeam.com
- 19. 1. ANNUITIES FOR AN INCOME YOU CAN’T OUTLIVE 2. TAX CONSIDERATIONS 3. CASE STUDIES 4. IMPORTANT QUESTIONS Income for Life (904) 425-0943 RetirementTeam.com
- 20. Case Study The Millers Bob: 65, retired at 62 Susan is 62, lost her job Could not continue her health insurance, not old enough for medicare Great savers Large IRAs, joint NQ accounts SITUATION This hypothetical example is used for illustrative purposes only. It does not consider the effects of sales charges or other expenses. Actual results will vary. The FDIC currently insures bank CDs for up to $250,000 per depositor, per insured institution. The issuing insurance company guarantees fixed annuities, but these guarantees are contingent on the claims-paying ability of the issuing company.
- 21. Case Study The Millers Fixed indexed annuities for their IRAs and purchased life insurance on each of them – Take single life distributions from Susan’s pension and each of their annuities – Yield - increased monthly income SOLUTION This hypothetical example is used for illustrative purposes only. It does not consider the effects of sales charges or other expenses. Actual results will vary. The FDIC currently insures bank CDs for up to $250,000 per depositor, per insured institution. The issuing insurance company guarantees fixed annuities, but these guarantees are contingent on the claims-paying ability of the issuing company.
- 22. 1. ANNUITIES FOR AN INCOME YOU CAN’T OUTLIVE 2. TAX CONSIDERATIONS 3. CASE STUDIES 4. IMPORTANT QUESTIONS Income for Life (904) 425-0943 RetirementTeam.com
- 23. Social Security Age to receive full Social Security benefits Year of birth Full retirement age 1943-1954 66 1955 66 and 2 months 1956 66 and 4 months 1957 66 and 6 months 1958 66 and 8 months 1959 66 and 10 months 1960 and later 67 NOTE: People who were born January 1 of any year should refer to the previous year. information from socialsecurity.gov (904) 425-0943 RetirementTeam.com
- 24. Sign up for Social Security You can apply for retirement benefits online at ww.socialsecurity.gov or call toll-free at 1-800-772-1213 or make an appointment at the office. (904) 425-0943 RetirementTeam.com
- 25. Medicare has four parts Hospital insurance Medical insurance Medical Advantage plans Prescription drug coverage (904) 425-0943 RetirementTeam.com
- 26. How Do You Select an Insurance Company? Description A.M. Best Standard & Poor’s Moody’s Fitch Ratings SUPERIOR A++ AAA Aaa AAA Very little risk A+ EXCELLENT A AA+ Aa1 AA ASlightly higher risk A– AA Aa2 AA– Aa3 GOOD B++ A+ A1 BBB High claims- B+ A A2 paying ability A– A3 ADEQUATE B BBB+ Baa1 BB Less protection B– BBB Baa2 against risk BBB– Baa3 BEL0W AVERAGE C++ BB+ Ba1 __ Relatively high C+ BB Ba2 risk factor BB– Ba3 WEAK C B+ B1 B Very high risk factor C– B B2 B– B3 NONVIABLE D CCC CC R Caa C DE Ca F C 4 IMPORTANT QUESTIONS
- 27. Selecting an Insurance Company A.M. Best 908-439-2200 Standard & Poor’s 212-438-2400 Moody’s 212-553-1653 Fitch Ratings 800-893-4824 OBTAINING RATINGS (904) 425-0943 RetirementTeam.com
- 28. Annuities and Creative Solutions (904) 425-0943 RetirementTeam.com
- 29. Where Do You Go from Here? (904) 425-0943 RetirementTeam.com
- 30. Do it yourself Work with others Work with us Procrastinate Where Do You Go from Here? (904) 425-0943 RetirementTeam.com
- 32. Thank YouThank You (904) 425-0943 RetirementTeam.com
Editor's Notes
- Welcome to our workshop, Income for Life. We’re excited to see you. Before we start the main part of our presentation, let me take a minute or two to tell you about some information you should have at your seat . Talk about sign in registration form, newsletter, future events and about appointments at the end of the seminar. ----- Meeting Notes (8/12/15 14:11) -----
- We have three main workshop objectives. First, we’d like to introduce ourselves and our company. Stratton & Company has been in business since 2001. We have over 800 clients in the Jacksonville Area. Eric Stratton, our founder and President, personally designs every financial strategy. We use workshops like this one to introduce ourselves and to develop strong working relationships with people like you. Second, we’d like to inform you about the benefits of financial tools, such as annuities, as part of your overall plan for retirement. We’ll also provide some information about techniques that can help give you some valuable information about some of designs we use and discuss some techniques that can help you reach your financial goals. And, third, we’d like to clearly illustrate the advantages of working with a company like ours.
- Our commitment to the community extends beyond simply offering insurance services. We are committed to helping people evaluate their situations and giving them the tools to help them make informed decisions. As part of that commitment, we use workshops like this one to provide individuals with sound financial information. This will help you identify your goals and make informed decisions. We follow up this session with a meeting in our offices. This is a no obligation consultation that we offer to everyone who attends our workshops. During that consultation, we can discuss any questions you have as a result of today’s workshop. If you prefer, we can use that time to examine your specific situation and begin the process of helping you formulate a strategy that will suit your needs. We know that we’ll establish a working relationship with you only when you’re confident we can be of service to you. We want you to understand your options and to know how you may benefit from our services. The information provided in this presentation is not written or intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel.
- When it comes to your long-term finances, you face a number of financial challenges. Is anyone in here still working? If so, how many of you tare VERY confident that you have saved enough money? One of the greatest concerns people have before they retire is whether they will accumulate enough money. According to one survey, only 18 percent of workers are very confident that they will have enough money to live comfortably in retirement. Here is the big challenge…….WE DON’T KNOW HOW LONG WE WILL LIVE!! Did you know that if you and your spouse are already 65, there is a 62% chance that one or BOTH of you will live to be age 90?? Source Annuity 2012 mortality table, Society of Actuaries
- Today’s discussion is designed to help you create an income for life so that you will not outlive your retirement savings. We will review five topics, which will be covered in greater detail throughout the presentation. First, we will discuss how a unique financial vehicle — the annuity — can generate an income for life. Then we will address some important tax considerations as well. We will take about some case studies that illustrate some of the opportunities that can benefit you. Finally, we’ll address important questions you need to ask yourself in order to make intelligent, informed decisions about the challenges you may face.
- Here is that statistic again. Why would we mention this twice?
- Every year, centenarians are growing in number. In fact, this group is the fastest-growing segment of the population. According to the U.S. Census Bureau, the number of Americans who are at least 100 years old is rising dramatically. In 1990, there were approximately 37,000 Americans aged 100 or older. In 2011, that number was 55,000. By 2035, the estimated number is 154,000. And by 2055, it is projected that there will be 493,000 centenarians. How many of you are financially prepared to live until you are 100 years old, or even longer? Source: U.S. Census Bureau, 2014
- Managing your income and keeping taxes low are important challenges to your long-term financial security. Fortunately, there is a unique financial vehicle that can help you meet these challenges: the annuity. Annuities are flexible, insurance-based contracts that can be used to satisfy many different needs and achieve a variety of objectives. Whether you want to generate lifetime income, accumulate retirement funds, reduce taxes on the growth of assets, or diversify income strategy, annuities can be a valuable addition to your financial strategy. BONUS FEATURE (Click the light bulb icon to view information about the projected increase in the number of individuals living to age 100.)
- What is an annuity? An annuity is a financial vehicle. I sometime refer to an annuity as a parking spot for money. Isn’t that what we do with money, we park it somewhere. Think about where you have your money parked. Our liquidity is at the bank…..or in some type of short term parking spot. We can get our hands on it in a hurry if we need to. It is not tied up. It is like running downtown and meter parking. When you purchase an annuity, it is a long term parking spot. There is a cost for long term parking. There is a cost to an annuity as well. They are not designed for liquidity. There are surrender penalties (CDSC,)if you leave early. However, just like the lot parking, there are some great benefits that an annuity provides, such as guaranteed lifetime income. An annuity can grow tax deferred. As you will see, an annuity can be an attractive vehicle to help generate income, reduce current taxes and accumulate retirement funds
- There are two basic types of annuities — deferred and immediate. Each type is used for distinctly different purposes. Deferred annuities are designed for long-term accumulation. People buy them because they want their money to grow and provide an income stream when they retire. Immediate annuities, on the other hand, are designed to provide income right away. Each type of annuity can be used to meet a variety of needs and objectives.
- A Fixed annuity will have a fixed account and can not credit negative interest A Variable annuity has a balance that goes up and down as the value of the vehicle that supports the annuity (such as mutual funds), goes up and down. Both Fixed and variable annuities have fees. Which is better? That depends on the individual. If you are comfortable with risk and are willing to accept it for possible higher returns, then the variable is probably best for you…but if you are concerned about losing money and are more focused on keeping what you have, then a fixed annuity is better for you.
- Today, we are going to talk about one type of Fixed Annuity…..A fixed indexed annuity. These are first and foremost FIXED annuities. That means that they must have a fixed account and they cannot credit negative interest. Your Interest is BASED on the performance of one or more indexes. If the index goes up, you will be credited with some of the upside. If the index goes down, you will receive zero interest but your account balance will not be reduced by the negative.
- Fixed Indexed Annuities can be use for preservation, accumulation and most importantly guaranteed income
- Insurance Companies collect vast amounts of actuarial data. They know about life expectancy. They have been collecting it for YEARS. This actuarial data is used by the insurance company to manage their risk with Life Insurance. Now many insurance companies offer annuities with income streams guaranteed for Life . It works like a pension but with one important difference………How many of you in here have a pension? (Show of hands). Now a question for your spouses……what happens if your husband or wife dies (get answers). Talk about life only vs spousal. Ok, so now we have a pension that pays out through the employees lifetime and then pays a benefit to the spouse. YAY…..But what happens when the spouse dies? Who gets what is left? THE PENSION FUND. Wouldn’t it be wonderful if those dollars went to your heirs?
- Now it can. Here is how it works. You drop your money into an annuity that has a rider or a built in provision for Guaranteed Income for Life. Now when you or you and your spouse pass away, YOUR BENEFICIARY GETS WHATEVER IS LEFT. Of course, you may live so long that the money is completely gone…….In this situation, you will continue to draw income until you die. If you selected spousal income, your spouse will still continue the income, even if the money is GONE.
- Now let’s look at some of the tax considerations you should be aware of with annuities.
- Tax-deferred compounding is an important advantage of annuities. Any earnings are not taxed until they are withdrawn, at which time they are considered ordinary income. By postponing taxes while your funds accumulate, you keep more of your money working and growing for you — instead of paying it out in current taxes. This can result in potentially greater returns on your annuity, especially over a long period of time. Keep in mind that only fixed annuities and the “fixed interest” account of a variable annuity pay interest. And any gains from your annuity will be subject to ordinary income taxes in the year in which they are withdrawn. Withdrawals prior to age 59.5 will have a 10% federal tax penalty. BONUS FEATURE (Click the light bulb icon to view information about the potential benefits of tax-deferred accumulation.)
- Annuities offer tax advantages and can be an effective part of your retirement strategy. Because they are tax deferred, they can help reduce current taxes on the potential interest growth of your funds. This chart shows the difference that tax-deferred accumulation can make. The tax-deferred fixed annuity has the potential to grow faster than taxable vehicles because it can become compounded over time, which may increase the amount of income generated for your retirement.
- Along with the advantages of tax deferral are some restrictions you should be aware of with annuities. First, because annuities are tax-deferred financial vehicles typically used to provide retirement income, they impose a 10 percent federal income tax penalty on withdrawals taken prior to age 59½. This penalty also applies to early withdrawals from traditional IRAs and most employer-sponsored retirement plans. Second, in addition to having fees and expenses, most annuities have surrender charges that are in effect during the early years of the contract in the event that you surrender the annuity earlier than anticipated. These surrender charges typically work on a sliding scale, with higher charges during the first years of the contract and lower charges in the years before the surrender charges expire.
- Now let’s look at some strategies you might consider that can use annuities as the funding vehicle.
- Meet Bob and Susan. Bob is 65 and Susan is 62. Bob retired early at age 62 and has comfortably settled into retirement life. He is drawing his pension and a reduced SS benefit. Everything was going along beautifully. Susan loved her job and often said she planned to work until age 70. Everything was ok…..until Susan’s job was eliminated. When they came in, they were in full scale panic mode. They met with one other professional before coming to see us. She had been advised to take a lump sum retirement and purchase an annuity. However making this choice would have meant that they would no longer be able to continue her health insurance and since she is not old enough for medicare, could have been a huge mistake.
- When we sat down with them, we were able to design a plan that would allow Bob and Susan to keep their health insurance. The plan began with establishing Bob and Susan’s monthly income need, reducing that need by the fixed income sources they already had (pensions, SS and rental income) and looking at the true deficit. Next, we looked at their assets. Bob and Susan were great savers. Each had large IRA’s and they had joint NQ accounts as well. These assets were not guaranteed. We used fixed indexed annuties for their IRAs. Purchasing life insurance on each of them enabled them to take single life distributions from Susan’s pension and from each of their annuities, thereby increasing their monthly income.
- Do you need to address your long-term income needs? If so, would an annuity be an appropriate vehicle to help meet those needs? If you are considering an annuity, there are some important questions to consider.
- If you are getting close to retirement age, you need to carefully consider how and when you will elect SS.
- And the fourth question is: How do you select an insurance company? . One of the best ways to compare insurance companies is to check with one of the insurance rating services. There are a number of rating companies that provide extensive analyses of insurance companies. These rating services carefully examine each insurance company in the areas of profitability, debt, liquidity, and other factors. Using the results of these examinations, they issue overall ratings. This table shows the rating scales of the four most prominent rating companies: A.M. Best, Standard & Poor’s, Moody’s Investors Service, and Fitch Ratings. Because these services use slightly different criteria when rating insurance companies, they may have a slightly different view of a given company. These ratings do not apply to the performance of the separate account of a variable annuity. You should be able to find copies of at least one of these ratings in the reference section of your local library. If you are unable to find them, you can contact the services directly.
- You can obtain insurance company ratings over the telephone. These phone numbers, which are on page 17 in your workbook, could prove to be quite valuable to you. (Pause to give workshop participants sufficient time to find the appropriate workbook page and then review the information.)
- Annuities offer creative solutions that can help you solve many of these financial challenges.
- We’ve covered a lot of information. We’re confident that we have given you some creative solutions to help meet several financial challenges. So, where do you go from here?
- There are several ways you can proceed from here. You can do it yourself. If you decide to purchase an annuity, you can call insurance companies, talk to salespeople, and make your own comparisons. You can use the workbook to assess your needs and evaluate various contracts. It’s a tremendous amount of work, but you could do it. You can work with others. Perhaps you have contacts who can help you accomplish some of your financial goals. You could work with us. We hope you feel comfortable with what you’ve learned about our professional knowledge and the approach we take with our clients. Finally, you can procrastinate. I hope we’ve made it clear that procrastination is not a prudent move. Of course, we hope you’ll decide to work with us, and we hope you’ll come to the no obligation review. We don’t expect you to make any decisions now, nor do we expect you to decide when you come in to our office. We want you to decide only when you’re ready. As you get to know us better, we feel confident that you’ll want to work with us. But again, the choice is up to you.
- In addition to your workshop workbook, there are several important items you should bring to the no obligation review. You’ll want to write these down. (Note: Mention the important financial forms and documents that you would like participants to bring to the consultation. Among others, you may want to include: • Personal balance sheet • Personal income statement • Recent bank/brokerage statements • Income tax returns — past three years • Life insurance policies • Annuity contracts • Retirement plan account statements.) Also, on pages 18 and 19 of the workbook, you’ll find worksheets designed to gather pertinent financial information about you. Please go ahead and fill this out at home. Then during our consultation, we’ll review this data accordingly. Of course, if you can’t find some of these documents or don’t finish the worksheets, please come anyway. We are looking forward to meeting with you either way.
- Thank you for coming to our workshop. We want to compliment everyone on the initiative you’ve shown in wanting to improve your financial situation. Before you leave, I’d like to shake hands with you and collect your evaluation forms. Thank you again.