Annuity Products May Have A Place in Your Retirement Planning
Annuities:
- Single Premium Immediate Annuity (SPIA)
- Fixed Indexed Annuity (FIA)
- Bonus Features, 5-10%, can Increase Returns
- Producing, Income For a Term or for Life
- Alternative to CDs, Higher Returns
NOTE: There is another class of annuities called Variable Annuities that are at the mercy of the markets and we will not offer them as too risky.
Fixed Annuities:
Annuities are sold by insurance companies, but are decidedly different from an insurance policy. In essence, you buy an annuity in exchange for a series of payments that are distributed at specific points of the life of an annuity contract. Many annuities have an indefinite payout schedule; the longer you live, the more you receive.
Not surprisingly, annuities come in various types. First, you can choose whether you want to receive payments right away or put them off until later. This is the primary difference between "immediate" and "deferred" annuities.
Single Premium Immediate Annuities (SPIAs):
This type of annuity is purchased by a single deposit. They usually start making regular monthly payments to you immediately after the date you make that deposit. The insurance company promises to pay a monthly income for the life of the annuitant and the buyer gives up his rights to ever receiving his deposit back in a lump sum. Once an immediate annuity makes its first payment, it generally cannot be cashed in. Since part of the principal is returned with each payment, greater amounts are received than would be provided by interest alone. This is how state lottery payment are paid out.
Fixed Indexed Annuity (FIA)
The type of annuity with the interest rate growth linked to the performance of an equity index, usually the S&P 500. Most fixed annuities pay the interest rate stated in the contract, but a fixed equity-indexed annuity pays a minimum interest rate, with the possibility of a higher rate depending on the performance of the relevant stock or equity index.
There are lots of features to this asset class, but the key one is that the principal is never at risk and the value of any gains, once posted, are also never at risk. You get a minimum growth of 1-3% with the potential of much higher returns in those years where the stock market does well. The bottom line, and the compelling feature is that the value can only go up, never down.
Bonus Features:
Many fixed annuity programs now offer immediate bonuses for your balance up to 10%. Usually the longer your annuity takes to mature, the greater the bonus. That means that $100,000 can grow at the increased amount of $110,000. If the annual interest is 3.75%, then that is a effective first year growth of over 14%.
Income Producing:
Many annuities now have a deferred income rider that allows the annuitant to choose, at some later date, to receive a monthly income for a determined amount of years, or even for life. Many of these annuities have a separate accumulation for the income stream than they do for the actual cash accumulation. There are also income bonuses up to 25% for the income accumulation
Indexing Is Your Best Friend:
If you had put $100,000 into in each of three investments, Fixed Indexed Annuity, a Fixed Interest Annuity, and into a stock fund in late September 1998, what would the accumulation amount be after 10 years?
These are actual numbers for that ten year period. You can see that the stock fund(Red) would have a balance of $111,033, The fixed interest annuity would have $134,391 (Light Blue). The best growth is the Fixed Indexed Annuity because your balance can never do worse than the minimum interest, but rose much more than the minimum in many of those years. Which do you want $156,857 (Dark Blue) or $111,033?
Also, please notice that the dark blue indexed line continues to rise slowly even in the years that the stock market goes down.
Is that peace of mind, or what?
Bonus Features:
Many fixed annuity programs now offer immediate bonuses for your balance up to 10%. Usually the longer your annuity takes to mature, the greater the bonus. That means that $100,000 can grow at the increased amount of $110,000. If the annual interest is 3.75%, then that is a effective first year growth of over 14%.
Confused?
Call us and we can explain why Kartan Tucker of the Tucker Advisory Group says:
The fixed indexed annuity (FIA) is perhaps one of the most innovative and effective financial tools invented in modern times. We have been taught our whole lives that in order to get a reward, you have to take a risk. Although there was a time when this was true, it's no longer the case. The FIA offers the perfect balance of reward -- with no market risk. This product must have been created with the kind of volatile markets we have been experiencing over the past decade in mind. When opportunity presents itself by a rising market, the FIA captures it for life. When the markets turn down, this vehicle protects not only our principal but also all previously captured gains.