Recent significant stock market declines and portfolio volatility have many investors inquiring, once again, about the safety of annuity accounts. Consumers ask, “Are annuities safe from a recession? Do they maintain value when the market goes down? Will they lock in my interest gains each year?” The answer is, yes. Investing in a fixed, an immediate, or an indexed annuity policy will protect your investment principal and gains from market losses.
Should You Wait Out Another Correction?
Unfortunately, many investors are suffering through similar pains to those experienced during the market slide from 1999 to 2003. Most (not all) brokerage accounts regained their losses from that period of time, but this recent downturn has quickly undone that progress.
It’s business as usual from the brokers – telling clients to wait it out. Yet, these same brokerage houses are busy selling stocks, trying to lock in profits while their individual clients absorb the losses. For many years the brokerage industry has shunned the safety of fixed annuity accounts while investor portfolios decline.
It begs the question, why should mom and pop investors participate in this turmoil again? Do they experience a higher standard of living when the market increases? Usually not, but they certainly feel the financial pain when the market contracts by ten or twenty percent.
Maybe younger investors can weather this storm, but there are those who cannot afford to experience these kinds of losses. Many senior investors are in retirement and counting on their nest egg to produce regular income. Or maybe they are near retirement and trying to decide how to best protect their IRA, 401(k) or 403(b) accounts for future income.
Is a Safe and Insured Annuity the Answer?
Annuity accounts are very beneficial for investors who need reliable growth, guaranteed income, and protection of their principal. Maybe the brokerage industry is winning the battle in the media, but annuity investors have been winning battle of asset preservation for the last ten years. Annuity owners have been protecting their principal and earned interest while experiencing above average returns on their investment.
You might ask yourself, “Have I not investigated annuity accounts because of what I know, or what I think I know?” If you are not sure, it may be worth learning more. A fixed or indexed annuity account can be a valuable alternative to a volatile brokerage account
Contact us today to discuss the safe, reliable and insured fixed rates and returns with fixed and indexed annuity accounts.
Category: Annuities, Articles
Recent market volatility resulting in portfolio declines has once again lead to a demand for safe, insured investments. With so many investment options available, many conservative minded consumers want accounts that guarantee principal, investment growth and/or lifetime income. We assist retirees who are in search of a safe place to invest retirement portfolios, IRA’s, 403(b)’s and 401(k)’s and cash.
Online Annuity Presentation For Your Education
As oppose to writing another article on the merits of safe annuity investing, we have created two presentations (posted below) where consumers can obtain an in depth annuity education. It is past time to debunk the myths and misinformation spread investment advisers who have lost significant wealth for their clients. The overall stock and bond markets have been in disarray for nearly a decade while fixed and indexed annuity accounts have safely and reliably increased in value.
Annuity Accounts Explained – Click on the Icon Below to Learn More
Our first presentation entitled “Consumer Annuity Boot Camp” will discuss the differences between qualified and non-qualified accounts. Knowing what category your money falls in will also help you plan for the future in terms of transferring funds and paying taxes.
From there, we offer a closer look into the types of annuity policies on the market today. We explain the differences between fixed, immediate and indexed policies. By viewing this presentation consumers can determine which annuity policy may best fit their overall investment objectives. It will also help them better understand the inner mechanics of annuity accounts.
Fixed Indexed Annuity Accounts Explained
(Editor’s note: Our second annuity presentation is currenlt being updated. We will re-post it soon.) Our second online presentation provides a detailed description of equity indexed annuity accounts. Topics include interest crediting examples, growth illustrations and an explanation of the mechanics associated with an indexed account. Consumers who wish for better potential growth than a traditional fixed annuity will benefit from viewing this presentation. Indexed accounts can be a viable alternative to stock and bond market investing.
Contact Us For Annuity Illustrations and Information
We are a full service, independent annuity brokerage and we can help you find the investment accounts that best suit your needs an goals. Contact us today to discuss your best options.
Category: Annuities, Articles, Ohio Annuity
In my numerous meetings with retirees, I have met many who live very comfortably in their golden years. Foremost, they have conservatively invested nest eggs typically in annuities and brokerage accounts. They also possess sizeable deposits at the bank including certificates of deposit, savings and checking accounts. This generation experienced the tribulations of The Great Depression and they understand the importance of saving their money.
Their most important assets, however, may not be invested in a brokerage account or at the local bank. The monthly income they receive from their pensions and their regular Social Security payments, when combined, pay most if not all of their living expenses. This recurring income operates as their primary asset allowing annuity, brokerage and bank deposits to grow undisturbed for future use. In this way, the income this generation receives provides significant and immediate financial stability.
It makes sense that today’s seniors would be able to accumulate a sizable nest egg as well as considerable bank deposits. Their monthly income usually more than covers monthly expenses allowing their existing investments to accumulate. Thus, the main concern for retirees is usually their health and long term care related expenses. That issue is easily solved with the purchase of a long term care policy. With an adequate monthly income and long term care health insurance, this prepared group of seniors can rest easy.
From Where Will You Receive Regular Income?
But what if you did not receive a Social Security payment? And what if you had no pension set up through work? Remember, your 401(k) is not a pension plan. That 401(k) or 403(b) plan is the same plan that seniors today have turned into their nest egg, not their retirement income. If you had no regular monthly income, how long would your nest egg last you?
These are the dilemmas facing many younger workers today. Company pensions have been frozen in many cases and have altogether disappeared in others. In an effort to cut costs, some of the largest employers in America have chosen to discontinue offering pension plans to their employees. Additionally, the Social Security Trustees forecast that this federal program will begin running a deficit in 2017. To make matters worse, the Social Security Trust Fund is only projected to be solvent until the year 2041.
It is safe to assume that you know whether or not you have a pension program at work. It is very difficult, on the other hand, to predict what might happen with Social Security. Depending on government surpluses and deficits or Congressional intervention, the program may or may not live up to its promises. Based on what we know today, younger generations counting on Social Security to shore up their retirement income may be in for an unpleasant surprise.
You Must Plan for Your Own Retirement
What should a concerned worker do? The bottom line is this: you will need to make arrangements for your own retirement. The days of the federal government and a large employer sponsored pension taking care of you are quickly fading away. If you are self-employed, you probably came to this realization some time ago.
I have been encouraging younger wage earners to start their own pension savings plans. And, yes, it is a good idea – even if you are contributing to some kind of traditional retirement plan like an I.R.A or a 401(k). An easy and very safe way to accomplish this is to set up a non-qualified annuity account. Contributions can be done systematically or sporadically based on your personal situation.
Why Should You Invest in an Annuity?
Fixed and indexed annuities are guaranteed financial instruments offered by insurance companies. They work very much like a savings account insofar as they earn interest, but do not lose value based on equity market conditions. If you select a non-qualified annuity, there are no restrictions on the amount you may deposit, but your deposits are not tax deductible like a traditional retirement account. On the other hand, these deposits will grow tax deferred until a later date, which allows you to enjoy the benefits of compound interest.
Once age 59 1/2 is reached, you can begin to withdrawal your funds with no penalties from the IRS. Unlike most retirement accounts, with a non-qualified annuity you are not forced to withdrawal a portion of your funds at 70 1/2. This way, you stay in control of how and when you withdraw your funds.
Annuity Pension Benefits – Taxes and Creditor Protection
The main benefit of an annuity is that it produces a guaranteed systematic payment. If that sounds like Social Security or a pension plan, that’s because they are all quite similar. Once you have accumulated your principal, you can turn those funds into a guaranteed stream of income for your lifetime. However, unlike Social Security and many pension plans you may elect a beneficiary to receive your payments should you pass away prematurely.
An annuity that has been turned into a stream of income carries additional benefits. An annuitization will spread out the taxable income over several years. Your systematic payment would be part principal and part taxable interest.
In this scenario, the taxable income is not automatically withdrawn first and the principal second. The principal and interest are withdrawn simultaneously. The monthly portion which is not taxable is referred to as the exclusion ratio. To summarize this point – your contributions are never taxed when withdrawn from a non-qualified annuity, but the interest gain would be. If the account is annuitized, then the taxable interest will be distributed evenly in each payment, not in a lump sum.
Furthermore, in many states, the payment to the owner is protected from creditors. Once the annuity principal has been annuitized, it is very difficult for creditors to attach to the monthly payments. As such, if you are involved in unfortunate legal proceedings in the future, you can know that you will have guaranteed income still available to you.
In summary, a non-qualified, fixed annuity can be an extremely valuable product in retirement. You can always wait until you are retired to establish the annuity principal with a lump sum contribution, but it can be less stressful to contribute a little each year. A guaranteed income stream will allow you, like today’s seniors, to worry less about your income and enjoy your retirement years.
Category: Annuities, Articles
Interest rates remain at historic lows. Conservative investors who needed guaranteed income and preservation of principal are in a bind. In many cases, returns at the bank are below one percent, but fixed annuity accounts are providing much better yields. Many investors are purchasing fixed annuities rather than bank instruments in order to capture higher returns.
Times may change and the United States economy will hopefully improve significantly. Inflation pressure will grow, and the Federal Reserve should ratchet up interest rates and treasury yields will increase in kind. While much of this is good news, it creates problems for the annuity purchaser from just a few years ago.
Concerns with Older Annuity Accounts
If you invested in a traditional fixed annuity account during these low yielding years, you may find yourself in a dilemma. The problem: many of these accounts have fallen to their guaranteed minimum yields. Currently, they might only offer a paltry return between 2 and 3.5 percent. There are several reasons for this decline.
To begin with, many annuity accounts have a first year bonus that will not be paid in subsequent years. In addition, these accounts often provide a floating rate of return. Their returns are not locked in. A floating rate annuity is quick to go down in years where yields are decreasing, but slow to come back up when yields in the treasury market increase. In essence, if you purchased an annuity in the lean years, you may have locked in poor yields for the duration of your account.
There are other issues as well. If your annuity has not reached maturity, you will have to pay surrender penalties if you cash in the account early. In addition, if you purchased a non-qualified annuity account, you may have accumulated tax deferred interest. Should you transfer your annuity to anything another than another annuity account, you could have income tax to pay. Taxes and penalties will quickly lower your account value upon early surrender.
How to Improve Your Fixed Annuity Returns
Rest assured ─ this is not a story of doom and gloom. The fix to this problem is simple. You simply exchange your old annuity for a new account. Yields have increased dramatically over the last three years, and a new account can lock in a much higher annuity rate. Furthermore, it may be a wise decision to lock in a guaranteed fixed annuity rate as oppose to an account with a floating rate of return.
Unless your account is very new, the higher guaranteed yields can more than make up for any surrender penalties your may have. A sizable account can accumulate thousands of additional dollars by making this change. (It is important to note that many economic pundits are already predicting that the Federal Reserve Board will begin to lower rates in 2007. This will most certainly force treasury markets and annuity yields lower for those who have not locked in higher rates.)
Income Taxes on Tax Deferred Interest ─ 1035 Exchange
Additionally, if income taxes are a concern, you should understand that taxes are not due if you transfer your old non-qualified annuity to a new annuity account. This is why owners simply transfer from one annuity to another in what the I.R.S. has deemed a 1035 tax-free exchange. Income taxes will only be due if and when you decide to take out your interest. If yours is a retirement account (also called a qualified account) you can simply perform a rollover. If done properly, (with the help of an experienced agent and/or accountant), a qualified rollover is not a taxable event either.
In summary, no longer do you need to dread your quarterly annuity statements. There are several reputable insurance companies providing very reasonable guaranteed returns. These products will provide you with peace of mind knowing that a market crash cannot diminish your principal or earned interest. Contact us for more information today.
Category: Annuities, Articles
Our annuity clients come to us looking for safety and security. Major stock market corrections, unstable economic conditions, high inflation, bank failures war, and Covid among other concerns are on their minds. There are fewer places now to invest safely.
Brokerage accounts are fluctuating wildly and bonds prices have taken a major hit as interest rates have increased. Unfortunately, many investors were counting on those funds to provide income and stability during retirement. Now they are holding depreciated assets.
Equity Indexed Annuity Account Introduction
Designed to provide a greater return than a traditional fixed annuity, an equity indexed annuity can be a reliable alternative to a brokerage account. Several billion dollars have been deposited into these types of accounts as investors seek safety and the potential for above-average returns.
Investors should have a little background information if they are unfamiliar with annuities. Generally, an annuity functions in the following manner: The investor (usually called the annuitant or owner) agrees to deposit funds with an insurance company for a specified period of time, say 7 years.
The annuity is usually in deferral during that period of time. While in deferral, most annuities will allow for distributions of interest gains, a yearly 10% free withdrawal, and/or the required minimum distributions mandated by the I.R.S. (Many annuities allow for larger distributions if the owner is confined to a nursing home or is terminally ill.)
Another way to distribute annuity dollars is through systematic withdrawals (referred to as an annuitization) and it is based on an agreed-upon schedule, say 5 years, but can be set up for a lifetime.
If the owner decides to withdraw the entire contract as a lump sum before the annuity has matured, then penalties are accessed based on the surrender schedule in the contract. If the investor passes away, the lump sum of the annuity is paid to a beneficiary at passing unless other arrangements have been made.
Fixed Annuities with Indexing Interest Gains
Technically, equity-indexed annuities are characterized as fixed annuities by the various Departments of Insurance around the country. That is to say, at no point does the investor ever own any variable type of security like a stock, bond, or mutual fund within their account. These investments do not fluctuate in value like a variable annuity. Yet, an equity-indexed annuity is not like your typical fixed annuity either.
What makes EIAs different than a traditional fixed annuity is the way interest is credited to the account. Typically, the insurance company will buy an option in a chosen index like the DOW, S&P 500, or the NASDAQ. After a period of time, usually one year, the option contract comes due.
One of two things will then occur. If the chosen market index has advanced, the option is cashed in and interest is credited to the annuity principal. Conversely, if the market has gone down, the option expires and no interest is credited to the account for that year.
In practice, the annuity either gains or maintains value each year, but the investment cannot lose value due to negative market fluctuations. In this way, the investor is only risking their interest gains in any given year, but in no way is s/he exposing their principal or gains from years past to any downside risk.
It is also important to note that all EIAs have a minimum guarantee each year. For example, this guarantee might state that if the market declines every year over the life of the annuity, the insurance company will guarantee an interest payment of 1% on 90% of the premium deposited for example. However, it is practically unheard of for this safety feature to kick in as rates or returns normally far surpass these guarantees.
Investors should also know that most equity-indexed annuities have a fixed interest account as an additional investment option. When interest rates are high and the stock market is in decline, the fixed account might be used to credit interest to the annuity principal. In this high rate environment, some one-year fixed accounts are paying over 6% for the first year.
In practice, the owner can change their investment allocations each year between the indexing and fixed options provided by their chosen policy. Owners are not required to choose one account and allocate all of their funds to it each year or for the life of the annuity. Many of our clients allocate their principal to several different accounts within the same fixed-indexed annuity in order to hedge their positions.
Indexed Annuity History and Performance
What kind of gains might you experience investing in fixed-indexed annuities? You can compare a few of our best indexed annuity rates, caps and returns here. Historically many of these policies have averaged returns of 7% or better. In years when the broader markets have performed well, so have EIAs. Caps, spreads and participation rates are at historical highs. Some participation rates are above 500%!
It is not uncommon for investors to capture interest gains of 10-20% or more during bull market years. Indexed annuities, however, show some of their most crucial value in bear market conditions. EIAs do not lose principal or past gains when the market goes down. Few investments offer that guarantee.
These facts may explain the recent popularity of EIAs, especially among retirees looking to preserve a lifetime’s worth of hard work. With the market advancing and declining so rapidly, many consumers are looking for safety and security without having to sacrifice reasonable interest gains.
Granted, indexed annuities will not return 50% in one year, like a fortunate stock pick might, but the peace of mind investors gain knowing their investment cannot decline has many placing a portion of their retirement funds into these safe and reliable accounts.
Contact A Licensed Broker
At Hyers & Associates, we’ve been working with indexed annuity policies for over 25 years. Our independence allows us to present all options to our clients. Whether you’re looking for a short term 5 year policy designed for growth or a longer term indexed account with with an income rider, we can help. Contact us to today to compare the options that meet your investment needs.
Category: Annuities, Articles, Retirement Planning
The S&P 500 – January’s first trading day in 2007: 1268.80
Many investors entered 2007 with positive expectations for the year ahead. In fact, a substantial number of large cap companies reported double digit income growth in the first quarter of the year. Pundits immediately chimed in with rosy prophecies of continued expansion.
Here’s an example:
The S&P 500 reaches a high point on May 5, 2007: 1325.76
Around that point in time, Ken Shea, Managing Director of Standard & Poor’s Equity Research Services stated, “…it’s possible that the momentum of the economy and first-quarter earnings could carry over into the second quarter…”
“…Given the robust earnings across a broad range of sectors and the low relative price-to-earnings ratio on the S&P 500, we’re bullish on the S&P 500 and believe there’s an opportunity for the index to produce an 11% total return in 2007…”
Since that day, the S&P 500 index has dropped by more than 7.73% in about one month of trading. Mr. Shea was not the only one mistaken. Many investors and so-called experts made the same judgment call and emotionally poured money into what they were hoping was a “hot market.” Today, we are hearing an altogether different story.
S&P 500 value on June 13, 2007: 1223.24
From Bloomberg.com
S&P 500 Index Futures Fall on Producer Prices
“The figures raised speculation the Federal Reserve will continue lifting interest rates to curb inflation, even as the economic expansion decelerates. Producer prices, excluding food and energy, came in higher than estimates.”
Did our world economic outlook change that much from May 5, 2007 to June 13, 2007? That’s less than 26 trading days! The answer is NO! All the pressures mentioned today were already bearing down on our economy one month ago. The key is to understand the source. Remember, market makers and promoters primarily make their money when they help investors BUY and SELL securities.
Over the last few weeks you can almost hear them yelling, “BUY! BUY! BUY!” only to be followed with “SELL! SELL! SELL!” a few days later.
Does an investor really win? Now overlay this environment on a retirement account that represents a lifetime of saving. This money MUST last a lifetime.
Over the long haul, traditional fixed and fixed indexed annuities have proven to be a great choice for safety minded people who want to sleep at night knowing their money is NOT losing value.
Contributed by: Unkefer and Associates
Category: Annuities, Articles, Third Party
The newest addition to the LTC marketplace is the long term care hybrid annuity account. This product functions exactly like a fixed annuity, but it has a long term care multiplier built into the policy.
There is no premium rider associated with this medically underwritten annuity policy. Put another way, there is no annual cost to the insured unless funded over a finite period of years. Most consumers fund their policy with a single premium, but not all.
Understanding Hybrid Annuity Accounts
A portion of the internal return in the fixed interest contract is used to pay for the long term care benefit rider. Total long term care benefit payouts are calculated based on the amount of premium deposited into the policy. The larger the deposit, the more leverage benefit that is purchased.
Hybrid annuities will declare a fixed interest rate every year – say 3% for example. The interest rate could be higher or lower depending on economic conditions during the lifetime of the policy. There will always be a minimum guaranteed rate which the policy cannot fall below – say 2% for example.
If the annuity is yielding 3%, then .60% might be used to pay for the long term care insurance benefit rider each year. Thus, the account would grow by 2.40% in this example. (It is understood that 2.40% may not keep up with medical inflation so most hybrid carriers also offer additional inflation protection for purchase. Inflation protection can also be purchased with a lump sum.)
Leverage Dollars for Long Term Care Expenses
Once the annuity has been funded, the underwriting insurance company will offer a leveraged payout of the initial premium. For example, a policyholder who invested a $100,000 single premium into a hybrid annuity that is leveraged 3x over would have purchased $300,000 in future benefits.
It is important to note that many carriers have a waiting period (usually one year) before the policy could be accessed for LTC benefits – thus, like all things insurance it is wise to plan ahead.
Additionally, the LTC benefits cannot be taken out over one or two years. Hybrid annuity providers usually require that the funds be taken out over a minimum number of years. In other cases, only a certain percentage of the leveraged policy value will be available each month.
Using the example of the $300,000 leveraged policy, if the minimum distribution length was 6 years, then $50,000 would be available each year for LTC benefits. However, this number is subject to change as the policy grows by the declared interest rate each year and also if additional inflation protection was purchased.
Funding a Long Term Care Annuity
There are only a couple of insurance companies offering long term care annuity policies at present and not all plans are available in all states. Some policies will allow for joint ownership while others may require individual ownership.
Hybrid annuities must be purchased with after tax, non-qualified funds or with the proceeds from another non-qualified annuity. The cash value of a life insurance policy can also be used in some cases. Most insurance companies will not accept qualified rollovers (IRA, 401k) as these accounts usually require future distributions or RMDs.
Occurring at 70 1/2, RMDs can upset the balance of the annuity and the long term care proceeds. Additionally, the proceeds will still be taxable upon withdrawal whether they were used for LTC purposes or not. Qualified money does not work well for you or the IRS with hybrid plans.
Advantages of a Linked Insurance Policy
The main advantage of a hybrid account whether it’s an annuity or a hybrid life insurance policy is the insured can maintain control of their invested dollars. With traditional LTC policies, premiums might be spent for several years with no benefit to the insured if extended care is never needed.
With a hybrid plan, however, the policy has value to the insured for withdraws, loans and/or if it is simply cashed out to be invested elsewhere. If none of the above occur, then the policy can be willed to a beneficiary.
In this way, a small amount of interest has been lost to pay for the LTC benefits, but the accumulated value of the policy will belong to a spouse, children, or any other named beneficiary.
Request Quotes and Information
Hyers and Associates, Inc. is an independent insurance agency specializing in long term care and annuity policies. We can help you compare and contrast several linked and hybrid accounts in order to maximize leverage and benefits.
Category: Annuities, Articles, Long Term Care Insurance, Retirement Planning
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