What will tomorrow bring? What is an Annuity? What are the different types of annuities?... 4

Transcription

1

2 TABLE OF CONTENTS What will tomorrow bring?... 3 What is an Annuity?... 4 What are the different types of annuities?... 4 What are the advantages and disadvantages of an annuity?... 4 How do I know an annuity is right for me?... 4 Where does an annuity fit in my retirement plan?... 4 Is my money safe? How do I know I will receive future payments?... 5 What happens to the money when I die?... 5 Annuity Taxes, Fees and Penalties Are you ready to take the next step

3 WHY MORE AMERICANS ARE SAVING THEIR RETIREMENT WITH ANNUITIES No one has to tell you that it is a new, anxious world for retirees. Pensions are nearly non-existent. People have not been able to save as much money as they will need. The economy is far from stable. Social Security seems under constant strain. WHAT WILL TOMORROW BRING? No one can accurately answer that question. That is why more Americans are turning to annuities to control their destinies. Annuities are a guaranteed source of income that you own and no one can take away. That stability in times of crisis and need is what attracted many former critics to embrace annuities as part of a firm foundation for a secure retirement. Harold Evensky, professor of financial planning at Texas Tech University, is one such former critic. He was dubbed the Dean of Financial Planning by Don Phillips, CEO of Morningstar, and is viewed as one of the top fee-only financial planners in the country. Evensky now says annuities can be the key to help solve retirement s greatest riddle: How do 76 million baby boomers pay for retirement? An analysis by the Government Accountability Office finds that among households with members aged 55 or older, nearly 29 percent have no retirement savings or a traditional pension plan. Millions of others are woefully short of retirement funds. Annuities are a valuable resource to help stretch dollars, Evensky said. I think that (annuities) are going to be an extremely important part of the investment and planning portfolio over the next decade or so, he said. An annuity is an insurance contract and like any contract it can be confusing. Terms and fees vary from annuity to annuity. People looking to save for retirement have to determine if the terms of an annuity or any contract are what they need and if the expenses are reasonable. The most important thing is to have all of the information to see if annuities fit in your plan. Because the simple reality is that the retirement formula has changed. The era of combining pensions with Social Security is over for many people. The country s movement away from defined benefit plans (such as pensions) to defined contribution plans (such as a 401(k)) placed more responsibility on individuals to manage their own nest egg. Studies show Americans have done poorly at this task. In fact, the federal government is promoting annuities as a retirement savings tool to address this problem. The administration changed the rules to allow employers to offer annuities within defined contribution plans, and to delay required minimum distributions (RMDs) to as late as 85 years old for deferred annuity holders. Social Security benefits represent the largest source of income (40 percent) for retirees in every age group, according to the LIMRA study, The Retirement Income Reference Book In its annual report, the Social Security Administration predicted its old age and disability trust funds, combined, would be exhausted in A political fix might happen at some point, with most ideas pointing to a raise in the eligibility age for benefits. That could make it even harder for future retirees to remain independent and in charge of their retirement lifestyle. The Center for Annuity Awareness is an independent resource to assist with retirement decisions and provides readers with unbiased information and tools. In addition, the Center gives consumers access to professional advisors who can help retirees in making important financial decisions about their future. It is more than just the money, it s helping retirees to secure a lifestyle, peace of mind and maintain financial independence. 3

4 WHAT IS AN ANNUITY? An annuity is insurance against living too long. Annuities insure your savings will last as long as you do no matter how long that is. With an annuity, you re buying longevity income to insure your savings last your entire life. People buy an annuity for peace of mind. Most of us have a parent, an uncle, or even multiple relatives, who have lived into their 90s. It takes a lot of money to live two and three decades in retirement. The No.1 fear among retirees is outliving their money. Annuities guarantee that won t happen. WHAT ARE THE DIFFERENT TYPES OF ANNUITIES? Annuities can be immediate or deferred. This is simply whether the income payments begin right away or later. Annuities can also be fixed or variable. Fixed annuities guarantee your money will earn at least a minimum interest rate. Fixed annuities may earn interest at a rate higher than the minimum but the rate isn t guaranteed until it is credited to your account. With a fixed annuity you are not investing directly in the market and insurance companies must promise that your money is protected from market losses for it to qualify as a fixed annuity. Money in a variable annuity earns a return based on how the investments you choose perform. Your investments are called subaccounts which are investments in mutual funds or other investment products. Your investment choices likely will have different types of risk and will affect the return you earn on your annuity. You may also have a choice to put some money into a fixed account with a guaranteed minimum interest rate. If the value of the subaccounts goes down, you may have less money in your annuity than you paid into it. WHAT ARE THE ADVANTAGES AND DISADVANTAGES OF AN ANNUITY? The very significant advantage of owning an annuity is peace of mind. The assurance that no matter how long you live, that check from the insurance company will arrive in the mailbox every month. This can alleviate a major source of stress for many seniors. The main disadvantage is loss of liquidity. That s why retirement planning experts recommend a diverse portfolio in which a portion is dedicated to an annuity, leaving the remaining funds available for emergencies and other types of investments. Annuity critics say the products are too complex, and some annuities have fees and features that can drag down your interest earnings. That s why it takes a commitment to shop around and ask the right questions. Talking with a professional can help answer your questions and assist in finding an annuity that is tailored to your needs. HOW DO I KNOW AN ANNUITY IS RIGHT FOR ME? Some questions to ask in determining if an annuity is right for you include: Am I in good health? Can I afford to remove some of my nest egg and put it into an annuity? What are my retirement goals? What is my risk tolerance? WHERE DOES AN ANNUITY FIT IN MY RETIREMENT PLAN? Top financial planners recommend an annuity to address longevity risk and provide guaranteed income. The important part is to have a balanced retirement plan. Providing an income from an annuity enables you to take a little more risk with remaining money. 4

5 Many financial planners recommend rolling an IRA, or a percentage of it, into an annuity. In addition to providing income and longevity insurance, rolling into an annuity is a tax-free process. IS MY MONEY SAFE? HOW DO I KNOW I WILL RECEIVE FUTURE PAYMENTS? Your annuity funds are guaranteed by the insurance company who issues your annuity. So it is important to confirm the company is on sound financial footing. The failure rate for insurance companies is very, very low. However, should a problem occur, your annuity contract will most likely be covered by your statewide guaranty association. All states have Insurance guaranty associations, which provide protection for insurance policyholders and beneficiaries. Insurance companies are required to belong to the state guaranty association where they are licensed to do business. Insurance companies use mortality tables to determine annuity payments. The company knows some people will live longer, but some will also die earlier. Companies take the money from all annuity sales and invest it in the market, making interest profit while paying out annuity payments. The rate of return of an annuity payment depends on how long you live. According to The National Organization of Life And Health Insurance Guaranty Associations (NOLGHA) report to Congress in 2011, eight life companies entered liquidation between 2008 and 2012, almost all were comparatively tiny regional writers; none were remotely systemically important; and their aggregate liabilities to policyholders were approximately $900 million compared to, for example, the initial general creditor liability of Lehman Brothers alone, which was reported at the start of its bankruptcy filing as being approximately $765 billion. WHAT HAPPENS TO THE MONEY WHEN I DIE? A lot of people resist buying an annuity because they are worried they will die and forfeit all of their money to the insurance company. If this is you, consider the ways you can a tailor an annuity to address this issue. Death benefits and joint and survivor are two ways you can ensure your annuity will leave some benefits to your heirs. An annuity professional can walk you through these options and set up your annuity to protect your loved ones. The payout may decline upon adding these options, of course, depending on how the annuity is structured. Otherwise, an annuity is surrendered to the insurance company upon the death of the owner. 5

6 Also get your FREE copy of What Every American Must Know About Annuities: 2017 Annuity Guide DOWNLOAD NOW ANNUITY TAXES, FEES AND CHARGES Annuities come with some fees. Like your 401(k) or IRA, if you want your money back early, there will be consequences in this case, surrender charges. There are also investment management fees if you have a variable annuity, just as with other investments such as mutual funds. Additional fees are included if you want riders that provide extra benefits to your annuity. If you are confident you won t need your money early, and you don t want riders, simply shopping around for the best price will likely net you an annuity investment at a cost similar to an IRA or 401(k). Annuities enjoy the same tax benefits as other retirement plans. If you use pre-tax money to purchase an annuity, then all payouts will be fully taxed. If you use after-tax dollars to buy an annuity, however, the portion of your annuity that you didn t pay taxes on, the interest, will have taxes due. A Qualifying Longevity Annuity Contract (QLAC) is a relatively new annuity that gives additional tax advantages for your IRA savings. Because Uncle Sam allowed you to save your money tax-free over the years, they do want you to pay it sometime. Typically, they require that you start taking money out at age 70½ (the IRS calls it Required Minimum Distributions). But with a QLAC, you are permitted to to delay Required Minimum Distributions until as late as age 85. ARE YOU READY TO TAKE THE NEXT STEP? If you re ready to investigate an annuity purchase in greater detail, visit our website at We can put you in touch with an advisor who will answer your questions in greater detail. 6