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Annuities explained


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Annuities explained is a presentation which will explain everything you need to know about the major types of annuities, what are the best annuities and how to select the most appropriate annuity in your particular situation.

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Annuities explained

  1. 1. ANNUITIES EXPLAINEDA Guide to Annuities by Timothy Mobley of TheBaron Group, LLC
  2. 2. Overview Whether you are trying to maximize the tax deferred growth of your money without market risk or guarantee a future income stream that you will not outlive, or both, there is a solution which will best fit your individual goals and objectives. There is not “one perfect product” to meet everyone’s needs and the industry that offers new products and carriers on an ongoing basis is constantly evolving.
  3. 3. What Are Annuities? An annuity describes a contract offered by an insurance company that allows you to accumulate funds for retirement on a tax- deferred basis. Upon retirement, there are a number of options to receive income from an annuity that can be guaranteed by the insurer to last as long as you live.
  4. 4. How Do Annuities Work? An annuity is an investment vehicle primarily for accumulating retirement savings or creating a retirement income. During the accumulation phase, you pay premiums to the insurer and earn interest on a tax deferred basis. During the second phase, called the Payout phase, the company pays income to you, or to anyone else you choose. Unlike many other retirement savings instruments, you will typically have flexibility in how you receive your funds. For instance, you can choose to receive a certain monthly payment that will last until the money runs out, or choose a certain period of time that you want to receive you money like a 10-year payout, 20-year payout, or even a lifetime payout of income.
  5. 5. How Do Annuities Best ServeInvestors? The two primary reasons to invest in an annuity are:  Saving money tax-deferred for a long-range goal (like retirement)  Receiving an income stream for a certain period of time. There are other strategic estate planning situations where annuities may be warranted as well. However, these will be dependent on your specific financial situation.
  6. 6. What Are Some Types ofAnnuities? While annuities might seem complex at first, they become easier to understand by breaking them into the following components:  How money is paid into the annuity contract  How money is withdrawn  How the funds are invested There are two broad classes of annuities:  “Deferred” annuities and  “Immediate” annuities. Each class has numerous sub-classes.
  7. 7. Deferred AnnuitiesA deferred annuity is most appropriate for peoplewho want to: Save for future retirement Not touch the principal and interest until age 59½ or older Find an investment that will earn tax-deferred interest for many yearsWith a deferred annuity you pay a premium to theinsurance company which issues a contractpromising to pay interest made on the premiumwhile deferring the income and the taxes until youactually withdraw the money or begin receiving anincome.
  8. 8. Major Types of Deferred Annuities There are three major types of deferred annuities  Fixed Deferred Annuity  Equity-Indexed Annuity  Variable Annuity
  9. 9. Fixed Deferred Annuities A fixed deferred annuity pays a guaranteed “fixed” interest rate (based on the current market rates of interest) where the earnings compound and grow tax-deferred. Fixed annuities offer safety of your principal from typical day-to-day market fluctuations in the stock, bond or other investment markets.
  10. 10. Equity Indexed Annuity An equity-indexed annuity differs from a fixed deferred annuity in that the rate of return on your investment is based upon the better of either a) the growth of a named stock market index, such as the Dow Jones Industrial Average, S&P 500 index, bond market index or b) a minimum guaranteed interest rate. Many equity-indexed annuities offer you an interest crediting method that is tied to the index gains. Still, this type of annuity does allow for potentially higher returns than a typical fixed annuity, since you can participate in a rising stock market or index, yet be protected on the downside by the minimum guaranteed rate of return.
  11. 11. Immediate Annuity An Immediate Annuity is most appropriate for those who want to receive an immediate and predictable payout. The immediate annuity allows you to deposit a lump sum and begin receiving regular payments normally within one year after the deposit. It is usually funded with a single premium, and purchased by retirees with funds they have accumulated for retirement. However, with the new Guaranteed Lifetime income riders that come free or can be added for a fee to most deferred annuities today, using a deferred annuity and simply turning on the income rider may be a better choice. The income rider may produce a higher monthly income and offer some flexibility and control which the immediate annuity cannot.
  12. 12. What Is The Best AnnuityThis question is best answered with otherquestions. What is the purpose of the annuity? What would you like the annuity to accomplish for you?Many companies and annuity marketingorganizations will tell you how great their annuityproducts are and how strong their features andbenefits are.The issue is not the product and how wellthought out it may be, but how the annuitymakes sense for your specific situation.
  13. 13. How To Select The Best Annuity Tips for selecting the best annuity for you: • Compare the features and rates of different annuity plans • Review the annuity provider for service history • Understand what the guaranteed interest rate is • Find out if the annuity contract contain surrender penalties and if so how long are they along with any fees forgiven in the event of death • Ask if there are any fees or expenses • Inquire about options for accessing your funds • Think if the beneficiary will receive the full value of the annuity • Explore with options for income are offered in the contract