Financial Strategies
Annuities
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Financial Strategy #2
Financial Strategy #2
Annuities
Income on a regular basis for the rest of your life.
Regardless of index performance, indexed annuity contract values will not be impacted by negative index returns.
Offers a sense of confidence through changing markets.
Different Annuities Designed to Give You Financial Security in Retirement
The Market can be confusing.
Market downturns and rising retirement costs may have you looking for the right financial strategy to help maintain your lifestyle in retirement.
Let's look at financial strategies designed to help grow and protect your retirement savings, while also providing a source of guaranteed lifetime income.
What Is An Annuity?
Some annuities begin paying income to you soon after you buy it (an immediate annuity). Others begin at a later date you choose (a deferred annuity).
An annuity is a contract with an insurance company. All annuities have one feature in common, and it makes annuities different from other financial products. With an annuity, the insurance company promises to pay you income on a regular basis for a period of time you choose—including the rest of your life.
How Deferred Annuities Are Alike
There are ways that most deferred annuities are alike.
They have an accumulation period and a payout period.
During the accumulation period, the value of your annuity changes based on the type of annuity.
During the payout period, the annuity makes income payments to you.
They offer a basic death benefit.
If you die during the accumulation period, a deferred annuity with a basic death benefit pays some or all of the annuity’s value to your survivors (called beneficiaries) either in one payment or multiple payments over time.
If you die after you begin to receive income payments (annuitize), your chosen survivors may not receive anything unless...:
1) Your annuity guarantees to pay out at least as much as you paid into the annuity, OR...
2) You chose a payout option that continues to make payments after your death.
For an extra cost, you may be able to choose enhanced death benefits that increases the value of the basic death benefit!
If You Take The Money Out Too Early
You usually have to pay a surrender or withdrawal charge if you take some or all of your money out too early (usually before a set time period ends). Some annuities may not charge if you withdraw small amounts (for example, 10% or less of the account value) each year.
Tax-Deferred
Any money your annuity earns is tax deferred. That means you won’t pay income tax on earnings until you take them out of the annuity.
Additional Features (Riders)
You can add features (called Riders) to many annuities, usually at an extra cost.
How Deferred Annuities Are Different
Here are some of the differences among deferred annuities.
You can pay for the annuity with one or more than one payment (called a premium).
Annuities can be a fixed annuity or a variable annuity.
Fixed Annuities
Fixed Annuities
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 only the minimum rate is guaranteed.
Money in a fixed deferred annuity earns interest at a rate the insurer sets.
The rate is fixed (won’t change) for some period, usually a year. After that rate period ends, the insurance company will set another fixed interest rate for the next rate period. That rate could be higher or lower than the earlier rate.
Here are some questions to ask me:
The initial interest rate – What is the rate? How long until it will change?
The renewal interest rate – When will it be announced? How will the insurance company tell me what the new rate will be?
Fixed Indexed Annuities
Fixed indexed annuities are a type of fixed annuity that earns interest based on changes in a market index, which measures how the market or part of the market performs. The interest rate is guaranteed to never be less than zero, even if the market goes down.
Some indexes are measures of how the overall financial markets perform (such as the S&P 500 Index or Dow Jones Industrial Average) during a set period of time (called the index term).
Others measure how a specific financial market performs (such as the Nasdaq) during the term.
The insurance company uses a formula to determine how a change in the index affects the amount of interest to add to your annuity at the end of each index term.
Once interest is added to your annuity for an index term, those earnings usually are locked in and changes in the index in the next index term don’t affect them. If you take money from an indexed annuity before an index term ends, the annuity may not add all of the index-linked interest for that term to your account.
Insurance companies use different formulas to calculate the interest to add to your annuity.
Fixed Deferred Index Formulas
Annual Point-to-Point – Change in index calculated using two dates one year apart.
Multi-Year Point-to-Point – Change in index calculated using two dates more than one year apart.
Monthly or Daily Averaging – Change in index calculated using multiple dates (one day of every month for monthly averaging, every day the market is open for daily averaging). The average of these values is compared with the index value at the start of the index term.
Monthly Point-to-Point – Change in index calculated for each month during the index term. Each monthly change is limited to the “cap rate” for positive changes, but not when the change is negative. At the end of the index term, all monthly changes (positive and negative) are added. If the result is positive, interest is added to the annuity. If the result is negative or zero, no interest (0%) is added.
The formulas insurance companies use often mean that interest added to your annuity is based on only part of a change in an index over a set period of time.
Participation rates, cap rates, and spread rates (sometimes called margin or asset fees) all are terms that describe ways the amount of interest added to your annuity may not reflect the full change in the index.
But if the index goes down over that period, zero interest is added to your annuity. Then your annuity value won’t go down as long as you don’t withdraw the money.
When you buy an indexed annuity, you aren’t investing directly in the market or the index. Some indexed annuities offer you more than one index choice. Many indexed annuities also offer the choice to put part of your money in a fixed interest rate account, with a rate that won’t change for a set period.
Variable Annuities
Variable Annuities
Variable annuities earn investment returns based on the performance of the investment portfolios, known as “subaccounts,” where you choose to put your money.
The return earned in a variable annuity isn’t guaranteed.
The value of the subaccounts you choose could go up or down. If they go up, you could make money. But, if the value of these subaccounts goes down, you could lose money. So, income payments to you could be more or less than you expected.
Subaccounts usually have no guaranteed return, but you may have a choice to put some money in a fixed interest rate account, with a rate that won’t change for a set period.
The value of your annuity can change every day as the subaccounts’ values change.
If the subaccounts’ values increase, your annuity earns money.
If the subaccounts’ values go down, you may end up with less money in your annuity than you paid into it.
How Annuities Pay You
Annuitize
At some future time, you can choose to annuitize your annuity and start to receive guaranteed fixed income payments for life or a period of time you choose. After payments begin, you can’t take any other money out of the annuity. You also usually can’t change the amount of your payments. For more information, see “Payout Options” in this Buyer’s Guide. If you die before the payment period ends, your survivors may not receive any payments, depending on the payout option you choose.
Full Withdrawal
You can withdraw the cash surrender value of the annuity in a lump sum payment and end your annuity. You’ll likely pay a charge to do this if it’s during the surrender charge period. If you withdraw your annuity’s cash surrender value, your annuity is cancelled. Once that happens, you can’t start or continue to receive regular income payments from the annuity.
Partial Withdrawal
You may be able to withdraw some of the money from the annuity’s cash surrender value without ending the annuity. Most annuities with surrender charges let you take out a certain amount (usually up to 10%) each year without paying surrender charges on that amount. Check your contract and disclosure or prospectus. Ask Emily Xu, Financial Advisor, about other ways you can take money from the annuity without paying charges.
Living Benefits for Fixed Annuities
Some fixed annuities, especially fixed indexed annuities, offer a guaranteed living benefits rider, usually at an extra cost.
A common type is called a guaranteed lifetime withdrawal benefit that guarantees to make income payments you can’t outlive. While you get payments, the money still in your annuity continues to earn interest.
You can choose to stop and restart the payments or you might be able to take extra money from your annuity.
Even if the payments reduce the annuity’s value to zero at some point, you’ll continue to get payments for the rest of your life.
If you die while receiving payments, your survivors may get some or all of the money left in your annuity.
Living Benefits for Variable Annuities
Variable annuities may offer a benefit at an extra cost that guarantees you a minimum account value, a minimum lifetime income, or minimum withdrawal amounts regardless of how your subaccounts perform. See “Variable Annuity Living Benefit Options” below and ask Emily Xu, Financial Advisor, about these options.
Variable Annuity Living Benefit Options
Guaranteed Minimum Accumulation Benefit (GMAB) – Guarantees your account value will equal some percentage (typically 100%) of premiums less withdrawals, at a set future date (for example, at maturity). If your annuity is worth less than the guaranteed amount at that date, your insurance company will add the difference.
Guaranteed Minimum Income Benefit (GMIB) – Guarantees a minimum lifetime income. You usually must choose this benefit when you buy the annuity and must annuitize to use the benefit. There may be a waiting period before you can annuitize using this benefit.
Guaranteed Lifetime Withdrawal Benefit (GLWB) – Guarantees you can make withdrawals for the rest of your life, up to a set maximum percentage each year.
Payout Options
You’ll have a choice about how to receive income payments. These choices usually include:
For your lifetime
For the longer of your lifetime or your spouse’s lifetime
For a set time period
For the longer of your lifetime or a set time period
Questions to Ask Emily Xu
Do I understand the risks of an annuity? Am I comfortable with them?
How will this annuity help me meet my overall financial objectives and time horizon?
How will buying an annuity will affect my tax liability?
Is an Annuity an ideal financial strategy for long-term goals such as retirement? If so, how could I achieve that goal if the income from the annuity isn’t as much as I expected it to be?
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Let's customize your cash accumulation strategy.
This permanent life insurance provides a death benefit that can help protect your family today and give you cash value growth potential that can help enhance your future income.
Financial Strategy #3
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Bequests to loved ones can quickly turn from acts of generosity into complicated burdens due to many things, including taxes. Yet certain taxes may potentially be reduced through a smart legacy strategy.
If you're a business owner, we need to make sure you're not just giving away money.
And for non-business owners, there are still powerful ways we can help you save a ton of money when it comes to taxes.
Financial Strategy #4
Estate Planning
The 3 most common wealth transfer goals:
Protecting a spouse's standard of living
Providing for non-spouse Beneficiaries (such as children and friends)
Leaving a charitable legacy
Solutions such as life insurance and annuities can help minimize the tax burden on heirs by providing tax-free benefits.
Financial Strategies that give you control on how your assets are distributed so you can better meet your family's needs.
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