Annuity Income Planning Planning for retirement income is an often overlooked but necessary piece of any financial plan. Some retirees rely on stocks and bonds, others opt for annuity accounts, and many use a mixture of both in order to diversify their assets.

Annuities have grown in popularity based on their history of safe & reliable returns and the guaranteed lifetime income they can provide. There are two classes of annuities used for future payments: Immediate and deferred income accounts.

This post will mostly focus on deferred annuity accounts with a guaranteed income rider. We offer both types to address all of our client’s needs.

Deferred Annuity Income Rider Examples

Income riders are gaining in popularity as investors are better understanding these products. In a nutshell, a fixed amount (the principal) is deposited – in either a lump sum or over time – in a deferred annuity offering a guaranteed income rider. At some point later in time, the income rider is activated at the owner’s request and guaranteed lifetime income payments begin.

Let’s take a look at a very basic example of a 60 year old male who is planning for future income 10 years from now. We will use an 8% income rider and place this on a $100,000 deposit with an annuity offering a first year 10% bonus. (These are real numbers using a real annuity as of the writing of this post; future numbers might be more or less.)

Single Annuity Income Rider Illustration

Years Deferred	Age	Income Account Value	Annual Payment
1	61	$118,800.00	$5,940.00
2	62	$128,304.00	$6,415.20
3	63	$138,568.32	$6,928.42
4	64	$149,653.79	$7,482.69
5	65	$161,626.09	$8,081.30
6	66	$174,556.18	$8,727.81
7	67	$188,520.67	$9,426.03
8	68	$203,602.32	$10,180.12
9	69	$219,890.51	$10,994.53
10	70	$237,481.75	$14,248.90
11	71	$256,480.29	$15,388.82
12	72	$276,998.71	$16,619.92
13	73	$299,158.61	$17,949.52
14	74	$323,091.30	$19,385.48

If this account owner defers his income rider until age 70, then he will receive approximately $14,250 a year or $1,190 a month for his lifetime. Assuming he lives to be 87 years old, then his $100,000 investment would have paid out $240,000 or more over his lifetime. It is difficult to find a stock, bond or certificate of deposit portfolio that would provide such guarantees.

Spousal Annuity Income Rider – Joint and Survivorship

Now let’s take a look at a similar scenario that provides income for a husband and wife – both age 60. Just as before, a $100,000 initial investment is made and the income rider is deferred for 10 years.

Years Deferred	Age	Income Account Value	Annual Payment
1	61	$118,800.00	$5,346.00
2	62	$128,304.00	$5,773.68
3	63	$138,568.32	$6,235.57
4	64	$149,653.79	$6,734.42
5	65	$161,626.09	$7,273.17
6	66	$174,556.18	$7,855.03
7	67	$188,520.67	$8,483.43
8	68	$203,602.32	$9,162.10
9	69	$219,890.51	$9,895.07
10	70	$237,481.75	$13,061.50
11	71	$256,480.29	$14,106.42
12	72	$276,998.71	$15,234.93
13	73	$299,158.61	$16,453.72
14	74	$323,091.30	$17,770.02

After ten years, the rider is activated and lifetime income begins for the couple. Their lifetime payments would be over $13,000 a year or nearly $1,100 a month. Thus if only one spouse lives to be age 90, then their $100,000 investment would have paid out over $260,000. Again, this investment provides very appealing guarantees for those who are planning on future income.

It is also important to note that these illustrations are linear in nature. This means, all other factors being equal, if the $100,00 initial investment was doubled to $200,000, then all of the income numbers would also double.

Income Withdrawal Percentages – Single And Joint

If you look at both charts carefully, you will notice that there is a significant jump in income from age 69 to age 70 with this particular product. Like all income riders, the amounts paid to the owners are based on predetermined percentages as guaranteed by the insurance company.

In the case of the single man age 60, his withdrawal percentage jumps from 5% to 6% at age 70. And with the couple, their income withdrawal percentage jumps from 4.5% to 5.5% at age 70. Thus, the income stream can vary somewhat significantly depending not only on the product and the insurance company, but also based on the withdrawal percentages allowed by the annuity rider.

Future Income Payments That Adjust For Inflation

Inflation Adjusted Annuity Payments The annuity income rider illustrated above also offers an inflation rider that allows the future payments to increase by 3% each year.

The 3% inflation rider has no direct cost to the owner(s), but it will adjust the withdrawal percentages lower meaning the annuity owner(s) will see less systematic income at onset, but perhaps much more later in life.

Inflation riders can be a valuable asset when attached to a guaranteed stream of income – especially if the annuity owners live well beyond their life expectancy.

Inflation protection is also appropriate for those who might need less income in the near future, but larger sums later in life for health care or other unforeseen expenses.

What Happens To Any Unused Annuity Funds?

Inevitably, investors want to know what happens if income is never taken or if only a portion of the income is withdrawn. If the income rider is never activated, then the annuity would remain in deferral and the principal would grow over time based on current interest rates and/or the performance of a chosen indexed investment sub-account.

Thus, there are always two accounts at work; the first is the contract value and second is the income account value that is used to determine the future income stream. The owners can always walk away with their contract value and invest their principal elsewhere should their income needs change in the future.

It is important to know that most income riders have a yearly cost that is withdrawn from the annuity contract value each year. This cost does not affect the income account value, but should the income rider never be activated, then the owner(s) has paid for something that was never used. In this way it is somewhat like a future income insurance policy.

A key benefit to these riders is that they can be turned on and off. Unlike most immediate annuities, where the payment stream is irrevocable, income riders allow the owners to stop the payments should their needs change. This provides much more flexibility and makes any decision about when to activate the rider much easier for the owner.

Residual Annuity Account Value At Passing

If there is an untimely passing and money still remains in the contract value, then those funds would be paid to the named beneficiary. They are not kept by the insurance company. However, if the contract value has been depleted, then the income payments would cease once the final owner of the account has passed away.

In some cases, any remaining amount in the income account can be taken by the annuity’s beneficiaries over a 5 year period. However, like all lifetime annuity accounts, these products are primarily designed with the owner’s income needs in mind and are not always appropriate vehicles to transfer wealth to any named beneficiary.

Request Illustrations And Information

Hyers and Associates is an independent insurance agency specializing in annuity accounts. We work with the leading carriers offering income riders including; Allianz, American Equity, Aviva, Equitrust, Jackson National Life, Midland, National Western Life, North American, Phoenix, Sagicor, and many others.

Using proprietary software, we can show investors how to maximize their income stream through early contract withdrawals that allow their income rider to remain in deferral for a longer period of time.

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Category: Annuities, Articles, Retirement Planning

There are significant differences between joint and linked long term care insurance policies. One type allows for couples to share a policy while the other allows a husband or wife to tap into the benefits of their spouse’s policy.

There are certain advantages to each type of LTC policy and through the help of an agent, couples can usually decide which insurance best fits their present and future needs.

Linked Long Term Care Insurance Coverage

Linked policies simply allow the first spouse to tap into the benefit pool of the second if all of the first spouse’s benefit dollars have already been spent on care. Thus, two policies are purchased – one for each spouse – and they are joined by a rider that allows couples to share benefit pools.

Long term care insurance coverage allowing for a linked benefit was most common far many years. Many consumers came to know these types of coverages as shared care. Several insurance companies offered shared care riders at an additional cost to the insured.

Knowing there were two available benefit pools helped reassure a husband and wife that extra dollars would be available if only one spouse became ill or injured and was on claim for an extended period of time.

Advantages And Disadvantages Of Linked Care

The advantage is fairly straightforward in that there are two separate policies that can be shared in succession thus doubling the amount of money and time available to one of the insureds.

However, it is important to know that both policies cannot be used at the same time by the same spouse. The benefits can be drawn upon separately by each respective spouse, but the two policies will not payout simultaneously for one person who is on claim. The first policy must be exhausted before the second policy will offer benefits to the same insured.

The primary disadvantage to a linked long term care policy is cost. Two separate policies must be purchased (one for each spouse) and then a shared care rider must also be purchased allowing the coverages to be linked.

In some cases, less coverage can be purchased by each spouse and then linked, but that may not help if more dollars are needed over a shorter period of time from one of the policies.

All considered, linked policies can be very valuable to an insured couple. While the coverage costs more overall, the benefits that can be paid out over time can more than make up for the price if only one spouse needs extended care and exhausts his or her own pool of money.

Joint Long Term Care Insurance Policies

Long term care insurance that is joint will be equally owned by a husband and wife or qualifying couple. In this case, only one policy (or benefit pool) is purchased from the LTC provider and both couples can draw from the policy simultaneously or separately when care is needed.

Joint insurance policies offer the same types of riders that linked policies do; such as inflation protection, restoration of benefits, non forfeiture clauses and the like. However, only one pool of money is available for both the husband and wife.

Typically, joint long term care is more flexible in that extra shared care riders are not needed. Both spouses can make claim at the same time and draw benefits up to the daily or month maximums allowed for by the policy.

Additionally, insurance companies offering joint policies have also introduced hybrid life and annuity plans that can be owned and drawn from by both spouses. Hybrid plans are popular as they offer present and future value to the insured in the event long term care is never needed by either spouse.

Advantages And Disadvantages Of Joint LTC

The primary advantage of a joint policy is lower yearly premiums. It is unlikely, although not impossible, that both spouses will need extended long term care coverage. By purchasing a joint policy, couples can reduce their overall premiums and share the same benefit pool unlike a linked plan. And there would be no need to purchase a shared care rider.

The disadvantage is if more care is needed than was originally purchased. In the event that both spouses become ill or injured at the same time, the insurance may simply not provide enough benefit to cover such significant expenses. While it would provide some benefits, it can still leave the family without enough readily available resources at their disposal.

When considering a joint plan, it is wise to purchase a little more daily benefit and to also consider a stronger inflation rider (5% compounding for example) in order to account for LTC expenses for both spouses simultaneously. A larger inflation rider will help the benefit pool grow and allow for more daily or monthly dollars payable for care.

LTC Information And Quote Request

Hyers and Associates is an independent insurance agency specializing in traditional and hybrid long term care insurance policies. We offer, direct to consumer, coverage from several highly rated and well known LTC providers.

Category: Articles, Long Term Care, Retirement Planning

Compared to what other investments? Is an annuity a good investment if you had invested the majority of your dollars with Bernie Madoff or Alan Stanford? How about if you invested in Countrywide, General Motors, Lehman Brothers, Enron, WorldCom Inc, Citi Group, Fannie Mae or Feddie Mac? Or maybe you were unlucky enough to have saved over and above what was insured at banks like Washington Mutual, IndyMac or Colonial Bank among many other large and small banks that failed.

Conversely, what if you bought and held Apple, Google, Priceline, Amazon or any number of biotech stocks for the last several years? You would be in the money, that’s for sure. But where do you find safe harbor for the dollars you want to invest conservatively?

Having the discipline and foresight to diversify your assets is most important in a fast changing investment landscape. Fixed, indexed and immediate annuity policies offer safety, income, growth, protection of principal, and an alternative to some of the more risky market based assets and ponzi schemes that have destroyed many investment and retirement portfolios through the years.

So Are Annuities Bad Investments?

It really depends on who you ask. We find ourselves in a period of industry warfare where a lot of disingenuous (and outright fictitious) information has been knowingly disseminated by those who think all of your money should be invested in stocks and bonds.

The flip side of this argument is that there are annuity agents who are promising the world with certain contracts and failing to disclose pertinent information to potential investors. Believe it or not, there is plenty of middle ground when it comes to investing for retirement.

Those who say that annuities are bad investments tend to lump all annuity classes together. What they fail to disclose is that there are several annuity types (with different optional riders) that are designed for different investment goals. To say that they are all terrible investments and consumers should run (not walk) away from is extremely misleading. At best, it’s lazy journalism; at worst it’s blatantly spreading half-truths and lies in order to push people toward risky investments in the stock market.

Misleading The Public For Personal Gain

Generally when these so-called investment pundits are espousing what they deem to be the negative attributes to annuity investments, they have ulterior motives. Oftentimes, they are shills for the stock market community and earn their keep by waxing poetic about annuity accounts they have never taken the time to research or understand.

You might remember that these same folks used to tell consumers that the insurance company kept all of your annuity dollars upon death. That’s not true, but it was enough to convince some consumers to avoid these safe and insured products.

Unfortunately, there are too many “annuity experts” out there doing their best to steer consumers away these accounts in order to pump more money into the stock market. Let’s face it; the market only goes up if people are buying stocks. If you are investing your hard earned dollars somewhere else, then there is less demand to prop up the overall markets. Sounds a lot like a ponzi scheme to me, but it’s legal so buyer beware.

What Are The Various Types Of Annuity Accounts?

Generally, there are four types of annuities for consumers to choose from. The only account that exposes the invested principal to market loss is a variable annuity. The other three types (fixed, indexed and immediate) are all safe and insured accounts that will not lose value when the stock and bond markets fluctuate. Additionally, all annuities can provide regular income in good economic times and bad.

Fixed, indexed, and immediate annuities have been purchased by investors for years to generate regular income and to protect retirement and non-retirement accounts alike. If they are such bad investments, then why are they often used in private and public pensions, structured settlements, lottery payments, and a host of other guaranteed contracts?

The fact is annuities are not bad investments. While it is true that annuity accounts pay commissions, have early surrender penalties, and can be longer term in nature; there is a place for them in most investment portfolios. When used properly, they provide a much needed insurance policy against income and/or stock market loss.

A Balanced Investment Portfolio

Stock market salespeople will have you believe that a balanced portfolio consists of stocks and bonds that are invested domestically and abroad. That theory was put to the test with the “Great Recession” of 2008 and failed miserably. All market based investment classes lost considerable value and as it turned out bonds were no safer than stocks.

It is true that overall markets have rebounded, but the volatile swings and so-called Black Swan events are here to stay. Younger investors might be able to better deal with such extreme fluctuations, but those who are in or near retirement often cannot weather such storms.

This is why a balanced portfolio contains assets with market exposure and those that cannot lose value when the next Black Swan event occurs. And of the assets without direct market exposure – fixed, indexed, and immediate annuity accounts are insured and reliable investments that will provide regular systematic income and principal growth to their owners.

It is unwise to disregard annuity accounts altogether when balancing an investment portfolio. Those who have, who were pushed into risky and unsuitable assets, have needlessly lost substantial dollars in the stock and bond markets.

However, those who invested a portion of their retirement portfolios in a fixed, indexed, or immediate annuity created a safety net that can provide guaranteed income and growth when the overall markets are losing significant value.

Summary and Information Request

In summary, when used properly annuities are valuable investments that have helped many consumers diversify their retirement accounts and reduced their direct market exposure.

Stock market cheerleaders can moan all day about surrender penalties and/or commissions, but let’s remember that these folks are not volunteers either.

The amount of money that it takes for them to constantly advertise on television and elsewhere has to come from somewhere. They seem to all be making quite a bit of money off the general public, but have the audacity to gripe about a commission payment.

The bottom line: When used properly annuities are a very safe, stable, and insured investment that you can count on for growth and regular income. When diversifying out of the market, annuity accounts should be at the top of your list as an alternative asset class.

– Hyers and Associates, Inc. is an independent insurance agency specializing in annuity accounts. We provide quotes, illustrations, and information on the leading policies from several highly rated carriers.

Category: Annuities, Articles, Retirement Planning

Annuities with Bonuses Are you searching for the highest bonus annuity accounts? Look no further. Our independent brokerage offers the best premium bonuses on first year and subsequent yearly deposits.

Interest rates and bonus amounts on annuities are constantly changing. It is best to give us a call in order to compare current yields and illustrations available in your State.

Some policies will require a future annuitization to capture the full bonus while others vest over time. It’s important to make sure any policy aligns with long term goals.

Index Annuity Accounts With Largest Bonuses

Insurance Company	AM Best	Bonus	Annuity Term	Bonus Vests?	Annuitize?	Brochure
Allianz Life	A+	40%	20 Years	N/A	Yes	Download >
North American Life	A+	26%	14 Years	Yes 14 Yrs	No	Download >
Global Atlantic	A	20%	10 Years	N/A	Yes	Download >
American Life	B++	20%	10 Years	Yes 10 Yrs	No	Download >
Midland National Life	A+	19%	14 Years	Yes 14 Yrs	No	Download >
Athene Life	A	18%	15 Years	Yes 15 Yrs	Yes	Download >
SILAC	B+	18%	10 Years	No	Yes	Download >
Ibexis Life	A-	16%	10 Years	Yes	Yes	Download >
Fidelity & Guaranty Life	A-	15%	10 Years	Yes 10 Yrs	No	Download >
Silac Life	B+	14%	7 Years	Yes 10 Yrs	No	Download >
Allianz Life	A+	13%	10 Years	Yes	No	Download >
Equitrust Life	B++	12%	14 Years	No	No	Download >
Aspida Life	A-	10%	10 Years	Yes 10 Yrs	No	Download >
AIG Corebridge	A	10%	8 Years	Yes 10 Yrs	No	Download >
American Equity	A-	10%	16 Years	No	Yes	Download >
Nassau Life	B+	10%	11 Years	Yes 13 Yrs	No	Download >

Considering An Annuity Rollover Or Exchange?

You may be looking for an annuity rollover and in need of a first year bonus to help recoup losses from an under-performing variable annuity or mutual fund. We can help.

However, it’s important to understand how annuity bonus accounts work. And you want to know what to expect before investing in one that offers the highest first year bonus. While there are plenty of accounts offering 10% premium bonuses or more, they work in different ways.

Some annuity accounts offer a 20% premium bonus for example, but they require a future annuitization. In other words, the bonus is only applied to a future stream of income. This is called an annuitization. In order for the bonus to pay out, you must annuitize the entire account (principal, interest, and bonus) for a set number of years – or even a lifetime.

First Year Bonus Annuity Accounts

Most fixed and indexed annuities offer a one-time bonus on all premiums deposited in the first year. The bonus amount is usually tied to the term of the annuity. That is to say, the longer the term (in years), then the larger the bonus.

First year only bonus accounts are usually appropriate for consumers who are looking to exit an underperforming investment. Maybe they have lost money in a mutual fund or wish to exchange a variable annuity for a safer investment like a fixed or indexed account.

Upfront bonuses can recoup investment losses helping to ease the pain of exchanging a poorly performing annuity account. The accumulated value of the new account (including bonus) can help match the death benefit value or initial investment value of the old policy.

We see this transaction work with life insurance plans as well. Many of our clients use a 1035 tax-free exchange when exchanging an old annuity policy for a new one. This method can defer taxes on any unrealized gains.

Multi-Year Fixed Premium Bonuses

Highest Annuity Bonuses Multi-year bonus annuities are not as common as those with only a first year premium bump. They are popular with those who are saving for the long haul – one year at a time. A select few annuity providers will offer premium bonuses (some as high as 10%) on all deposits made in the first seven years of the account.

This is valuable for consumers who are slowly divesting from another investment. An example is someone who’s systematically converting a traditional IRA to a Roth IRA. The advantage is that the income tax liability created by the Roth IRA conversion would be spread out over more than one year.

Multi-year annuity accounts are also appropriate for those who are saving toward retirement. If larger deposits will be made over a 2-7 year time period, then the account owner can take advantage of the bonus opportunity. This provides a much larger principal amount to draw from during retirement.

Annuity Income Riders Offering Bonuses

Income riders are quite popular with investors who desire a future guaranteed income stream. When the rider is attached to certain fixed and indexed annuities, then the income account value will also be credited with the bonus amount.

Those who want to divest a portion of their portfolio from the ups and downs of the overall markets are using guaranteed annuity income riders (with or without a bonus) as a simple, but effective means to create a future lifetime income. When a 10% bonus is added to the account value, future income streams are larger.

What Are The Disadvantages To Annuity Bonuses?

The first and most obvious one is time. In order to secure a large first or multi-year bonus, you must be willing to commit your premium for a longer period of time. Any account offering a 10% or greater bonus will usually require at least a ten-year surrender term.

It is important to understand that annuity owners will always have penalty-free access to a portion of their invested funds. However, if you choose to withdraw all of your money before the annuity term is up, early surrender penalties will likely be encountered.

Surrender penalties are not assessed on regular income withdrawals, yearly principal (usually 10%-20%) or RMD disbursements, withdrawals for health reasons, during annuitization, or at death. Annuity investors with longer surrender periods have several ways to access their funds for any number of reasons without facing penalties.

It’s also important to know if your annuity bonus vests over time – some do and some do not. If you withdraw your funds early, then the bonus might not be fully vested with some policies. Vesting rules also come into play when the owner passes away. Should the account owner pass away prematurely, the bonus value may not be fully vested with some insurance companies.

Buyers of annuities should ask if the first or subsequent year bonuses will mitigate future interest gains. In many cases a fixed account with no bonus, but offering a guaranteed multi-year rate may offer better growth in the long run than one offering a larger first year bonus.

Consumers should always ask about the guaranteed interest rates offered by the insurance company over the life of the contract depending on the type of annuity purchased. Fortunately, interest rates are high meaning consumers can lock in strong bonus annuities with strong crediting potential.

Summary, Quote Request & Investment Assistance

Annuities offering the best bonus rates may not be the same for every person and in every situation. And some may simply be inappropriate for certain investors. It is always wise to speak with an insurance expert to make certain all variables are thoroughly understood before investing.

Hyers and Associates, Inc. is a full service, independent insurance agency specializing in fixed, indexed, and immediate annuity accounts. We help consumers all over the country with rollovers, 1035 exchanges, and retirement planning.

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Category: Annuities, Articles, Retirement Planning

Conservative investors looking to protect a portion of their individual retirement account will often consider an annuity as a means to establish predictable growth and reliable income now or in the future.

IRA annuity investments provide steady growth and are ideally suited for required minimum distributions. There are several types of annuity accounts to choose from, but most often fixed, indexed, and immediate policies are chosen based on their safe track record.

Explaining An IRA Annuity Investment

An IRA (individual retirement account) is a savings vehicle that is funded by investors during their working years on a tax advantaged basis. Invested funds grow tax deferred and can be withdrawn on a taxable basis once owner reaches age 59 1/2. Mandatory distributions must begin at age 70 1/2 in most cases.

An annuity is simply an investment with an insurance company; much the same way that a certificate of deposit is an investment with a bank. There are several types of annuities available for investment purposes including: variable, equity-indexed, fixed, and immediate.

Thus, an IRA annuity is a combination of the two. As oppose to investors placing their tax-deferred retirement dollars in a bank, a mutual fund, the stock market or elsewhere, the monies are invested into an annuity account that best fits their risk tolerance.

What Are The Advantages Of IRA Annuities?

IRA Annuity Accounts Depending on the annuity that is ultimately selected, the primary advantage is safety.

Variable annuities aside; fixed, indexed and immediate annuity policies are some of the safest investments available for conservative minded investors.

The overall markets have been very unpredictable over the last decade and many investors simply want a retirement account that provides steady growth and income. Annuities are well known for their reliable fixed interest, predictable returns and regular income.

Some investors wait until retirement to exit the stock market, but many others place some or all of their qualified (tax-deferred) money in a fixed or equity-indexed account in order to protect it from downside market loss.

IRA Required Minimum Distributions

Annuity policies can be ideal for the required minimum distributions that most IRA owners must take at age 70 1/2. If these same funds are subject to market fluctuations, then consumers may have to sell more shares toward the end of the year in order to satisfy I.R.S. requirements. Once shares are sold, they are no longer present to participate in any gains should the market recover.

Fixed, indexed, and immediate annuity accounts avoid this conundrum as they do not fluctuate down with the overall markets. This is why fixed interest investments are preferred when distributions are required. They can help prevent the erosion of retirement accounts by eliminating the need for selling a depreciated asset each year.

Beneficial And Stretch IRA Annuity

The beneficiary inheriting an IRA has several choices in most cases. In many instances, there will be more than one beneficiary of a retirement account and the new owners might make different choices as to how the funds are invested.

Annuities are ideal for IRA beneficiaries who wish to reduce their overall tax burden by receiving the funds based on their life expectancy as oppose to a lump sum distribution. A stretch IRA annuity account can be a suitable investment as the income and distributions are very predictable allowing for regular principal and interest withdrawals.

By stretching the distributions out over several years (if not a lifetime) the IRA beneficiary can oftentimes maintain a lower tax bracket, increase the value of the account while providing reliable income for a desired number of years.

Assuming the annuity has reached maturity, the multi-generational IRA owner can also withdraw funds above and beyond what is required by the IRS should they be needed. In this way, stretch annuities provide superior tax advantages and flexibility over comparable investments.

Annuity Income Riders for IRA Accounts

Income riders are simply a way of guaranteeing growth on the invested dollars in a fixed, indexed or variable annuity account. These riders usually have a fixed cost each year that is subtracted from the invested principal.

The guaranteed growth or roll-up varies from carrier to carrier, but is usually around 7-8%. It is very important to factor in the future withdrawal factor (usually based on age) when shopping around for the best annuity income rider.

That being said, fixed and indexed annuities offering a guaranteed income rider are increasing in popularity for those who wish to establish regular future income. The roll-up allows for steady and predictable growth on the invested principal.

The accumulated income value can be turned into a stream of income for a lifetime 5, 10, 15 or 20 years later depending on the needs of the investor. Income can also be adjusted or even paused if desired.

Summary and Information Request

Hyers and Associates, Inc. is an independent insurance and annuity agency offering individual retirement accounts from several carriers. We assist with fixed, indexed, income generating, beneficial, and traditional IRA rollovers.

Using our expertise, you can view illustrations from several highly-rated carriers in order to find the most suitable investments for your needs.

Category: Annuities, Articles, Retirement Planning

There are some common misconceptions concerning who is responsible for long term care expenses. Oftentimes consumers erroneously believe that government run Medicare and private supplemental insurance will pay the costs associated with extended care. Unfortunately, this is not the case.

Medicare, when combined with some supplemental Medigap policies, will only cover a maximum of 100 days of prescribed skilled care in an extended care facility. After 100 days has passed, there are no additional benefits from either of these two insurance programs.

What does Medicare Pay Toward Long Term Care?

Medicare is not designed to provide benefits for long term care expenses for any significant period of time. Parts A and B only provide full coverage for skilled care for the first 20 days of accident or illness. After 20 days, Medicare pays roughly 80% of the total cost for up to another 80 days. And after 100 days of care, there are no additional benefits for that stay.

It is important to understand that Medicare only provides benefits for extended hospital or medical facility stays when skilled care is prescribed. This would be care that is monitored by a doctor or qualified nurse. Medicare does not provide benefits for custodial or intermediate care.

Custodial and intermediate care might also be administered by a nurse and monitored by a doctor, but generally consist of help with the most common activities of daily living. These activities consist of bathing, eating, dressing, transferring, toileting, etc.

If a doctor prescribes intermediate or custodial care or help with the activities of daily living, then Medicare offers very little coverage for these services. Only those who are receiving skilled care will receive benefits from government run Medicare Parts A and B – and only for 100 days.

Does Medicare Supplement Insurance Pay Long Term Care Expenses?

Private Medicare supplement insurance is designed to provide benefits for some of the common gaps not covered by Medicare. However, it only provides benefits for skilled care as well. Supplemental insurance policies do not provide benefits for custodial or intermediate care.

There are ten modernized Medicare supplements to choose from – Plans A-N. The six plans that fully cover skilled nursing care coinsurance not covered by Medicare are labeled C, D, F, G, M and N. Plans K and L cover 50% and 75% of the bill respectively.

Skilled nursing facility coinsurance is the amount due in days 21-100 of a hospital or facility stay. In 2014, the coinsurance amount due per day is $152.00 after day twenty. Each year, Medicare usually increases the skilled care coinsurance amount by a small amount.

Will Medicaid Pay for Long Term Care?

Yes, so long as you spend down almost all of your individual assets and at least half of the assets shared with your spouse. Additionally, Medicaid will usually attach to the surviving spouse’s share of the assets (including the home and property) after passing.

The Medicaid spend-down and recapture process is a grueling one and can be very painful financially and emotionally for spouse and family. Not to mention the notion that the care received in some state run Medicaid facilities may not be up to family standards.

Government Medicaid assistance received after the estate spend-down process is usually a last resort for most families. It can be avoided with proper insurance planning ahead of time.

What About Long Term Care Insurance?

Long term care insurance coverage is the only insurance policy that provide benefits for skilled, intermediate and custodial care. Most policies pay for care received in-home or at an accredited medical facility. In some cases, policies will also provide benefits if a family member is the caregiver.

Long term care insurance policies come in several shapes and sizes. There are traditional plans that draw from a pre-purchased pool of money and there are hybrid plans that are connected to a life or annuity policy.

Most modern policies provide tax advantages to the insured at purchase or when the benefits are drawn and in some states the insured can protect a matching amount of money in their estate through qualified partnership plans.

In order to receive benefits from most long term care policies, the insured must have difficulty performing at least 2 activities of daily living or be diagnosed with a cognitive impairment. These requirements are usually corroborated by a doctor or medical expert.

Long Term Care Coverage and Benefits

LTC insurance plans usually have a short waiting period before the carrier will provide benefits as determined and agreed upon in the policy. Policies pay out in different ways but can be purchased to provide monetary benefits for several years or up to a lifetime. All policies payout a calculated amount of money daily, monthly or yearly and many adjust benefit payments for inflation.

There are several bells and whistles that can be added to long term care insurance plans at purchase. Insurance companies have designed benefit types with the insured, the spouse and the family in mind. It is important to remember that you must be in reasonably good health before a long term care policy can be purchased.

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In summary, government Medicare when combined with the best available Medicare supplements (including Medicare Advantage) provide very limited benefits for long term care coverage and only provide benefits for doctor prescribed skilled care.

Those who have assets to protect, are concerned about a surviving spouse, want to pass their estate to family members or charity, and wish to avoid the Medicaid spend-down process should consider some type of long term care insurance plan. Traditional and hybrid plans can provide substantial benefits for the insured and protect a lifetime’s worth of accumulated wealth.

Hyers and Associates is a full service independent insurance agency offering several types of long term care insurance. Contact us today for more detailed information, quotes, brochures and illustrations.

Category: Articles, Long Term Care, Retirement Planning

Let’s face it, sometimes annuities get a bad rap in the investment world and perhaps some of that is deserved. In fairness, those who are talking down these accounts are usually trying to sell some other financial product.

However, the bottom line is investors are usually and understandably concerned about access to their deposited funds. Safe investments need to provide suitable liquidity for living needs, emergencies, and required minimum distributions.

Annuity Surrender Charges

Almost all deferred annuities carry some type of early surrender penalty during the chosen investment term. The penalty is usually a percentage of the invested amount that decreases each year until the end of the chosen annuity term.

Most deferred annuity accounts carry a term that is between 1 and 10 years. Should you withdraw all of your funds before your chosen term is up, then you will incur a surrender penalty. Early surrender percentage amounts will vary from company to company and will always be included in your application and contract material.

Annuity Liquidity and Interest Withdraws

This usually brings up the question of liquidity. In what way(s) can an owner withdraw funds before the annuity has matured without incurring a surrender charge? Almost all annuities allow for the following types of penalty free withdraws:

Monthly Interest
Yearly percentage of the principal
Required minimum distributions
Long term care expenses
Diagnosed terminal illness
Return of invested premium

Monthly Interest Withdraws

In reality, there are several ways to withdraw money from your annuity account without penalty. Many consumers use their annuity account to generate needed income on a systematic basis.

Most fixed interest annuity accounts allow for earned interest withdraws monthly, quarterly, semi-annually, yearly or as needed. Monthly interest can be taken after the first month and in the first year of the contract. However, in almost all cases, the owner of the account must be over age 59 1/2 to withdraw interest only.

Access to Your Annuity Principal

Additionally, many annuity policies allow the owner to withdraw a percentage of the principal each year. Most contracts allow for a minimum 10% principal withdraw each year – although some only allow this feature in year two and beyond.

In some cases, if the 10% is not used in one year, then it can carry over to the subsequent year allowing for a 20% penalty free withdraw. Other contracts will allow for higher principal withdraw percentages as outlined in the contract.

IRA Annuity Required Minimum Distributions

All annuity accounts allow for penalty free access to the required minimum distributions that are mandated by I.R.S. once the owner has reached age 70 1/2. In short, your chosen insurance company cannot penalize you for what the federal government requires.

That is why fixed and indexed annuities are popular accounts when establishing stretch or beneficial IRA accounts. Conservative investors will choose an annuity as they are designed to efficiently credit interest and systematically disperse RMD amounts each year without exposing the investment to market fluctuations.

Principal Withdraws for Health Concerns

Annuities offer special provisions for those with major health concerns. If you are in need of long term care, then most contracts allow for sizable penalty free withdraws if not complete access to the principal. As part of the recently enacted Pension Protection Act, many annuity accounts also allow for income tax free withdraws for extended care.

Owners who are diagnosed with a terminal illness also will be provide with enhanced liquidity options. In most cases, the insurance company will allow for penalty free distributions of the entire accumulated value should it be wanted or needed.

Annuities Offering Return of Premium

Finally, and this is something new to the annuity marketplace, some policies allow for a full return of premium. You may not receive any interest should you surrender the account early, but you can withdraw your entire premium without losing any of the invested principal.

This is beneficial for those who might need to surrender the contract in the first couple of years. After two or three years, most fixed and indexed annuities will have credited enough interest to overcome the penalty percentage amount. That way, the owner can withdraw more than what was originally deposited.

Policies including a return of premium provision are suitable for those concerned about large future expenses and for those who want total access to the investment should something unexpected occur. A return of premium provision allows liquidity conscious consumers to rest assured during the early years of their contract.

Annuity Laddering Strategy

It is prudent to invest for an annuity term that meets your known present and future needs. And it is wise for those who need regular access to income and/or principal to use an immediate annuity account or a laddering strategy in order to insure regular access to their funds.

By using a laddering strategy through the purchase of multiple annuities with various maturity dates, you can assure that reasonable sums of principal will come due every couple of years. If the annuity principle is not needed, then the account can be reinvested for another similar term. Just like bank CD’s – annuities can provide ample liquidity when laddered properly.

Summary, Information and Quotes

Annuity investments are not appropriate for everyone. While fixed and fixed indexed annuities provide unmatched safety and above average growth potential, investment liquidity may be what is needed most.

You simply would not invest money in a ten year account that you know will be needed two years from now. It is important to discuss your overall financial needs with an agent before investing to insure the purchase of a suitable account.

Hyers and Associates, Inc is an independent and national provider of annuity investments. Contact us today to discuss annuity quotes, illustrations and information regarding any of the above mentioned accounts or strategies.

Category: Annuities, Articles

There are three types of deferred annuities for investors to choose from in order of least to most risk: fixed, fixed-indexed, and variable. Variable accounts are most risky as they are directly tied to the ups and downs of the overall stock market which is why you you see variable annuity complaints.

In an attempt to lessen the risk of investment loss associated with variable annuities, many insurance companies now offer guaranteed death benefit and/or a living income benefit riders. It is important to understand how these riders can affect future account values and withdraw options.

Variable Annuity Complaints: Death Benefits

Death benefits were the norm in most annuity contracts over the last decade or so. Annuitants paid a small fee each year and in turn were offered a guaranteed death benefit that would equal a predetermined growth or accumulation value in the annuity policy. These are sometime referred to as “high water-mark” contracts.

The problem is the stock market has been extremely volatile over the last decade and this volatility appears to be an increasing trend. There have been at least two significant economic downturns that caused precipitous drops in all of the major market indexes. This caused several variable annuity contracts to have a significantly higher death benefit (high water mark) than living benefit (walk away value) for the owner.

In reality, what started as an annuity account quickly turned into a life insurance contract due to a substantially higher death benefit. Most annuities were worth more to the owner at passing than during his or her lifetime. That might be acceptable if policyholders were only concerned about their heirs, but that is usually not the case or life insurance would have been purchased in the first place.

Furthermore, when withdraws were taken from the account either through required minimum distributions or for living expenses, then the leveraged death benefit would decrease in kind. In this way, many variable annuity owners were stuck with a confusing, hard-to-value investment.

Variable annuity policyholders might be hesitant to cash in their account for fear of losing the higher value that might be passed on to their beneficiaries at passing. At the same time, they wanted an investment that was more predictable and less volatile. Those competing needs simply did not allow for enough investment flexibility and choice.

Variable Annuity Lifetime Income Riders

As oppose to a life insurance rider that provides a potentially higher contract value at death, this living benefit provides a guaranteed income stream to the annuity owner for a predetermined period of time – usually life.

In this way, there are two values at play. The actual value of the contract (subject to market fluctuations) that allows the owner to walk away at the end of the term; and the second value or lifetime income value if the contract is later annuitized.

The lifetime income account value increases each year by a predetermined amount (6% for example) and costs a few basis points to the owner each year – perhaps 1/2 of one percent. Thus, if and when the market collapses, the income account value will be much higher than the walk away value.

In order to withdraw the maximum from the annuity, the owner must annuitize the contract over his or her lifetime and has in essence purchased a future income stream, but not a deferred annuity. If a future income stream was needed, then there are safer annuities offering such guarantees.

Just like the guaranteed death benefit, the living benefit rider causes the variable annuity to morph into a different type of investment or what is commonly referred to as an immediate annuity. And just like the former, the owner may feel they are stuck with an investment they did not originally purchase.

The insurance company can guarantee a 6% step-up each year on the income account value because of the yearly charge and the fact that they will control all deposited funds for the life of the owner. Insurance companies will make some of their money back during the lifetime payout process.

Walk Away with the Accumulated Annuity Value

Of course, there is nothing that prevents owners from transferring the deferred variable annuity contract to a safer investment at the end of or during the investment term. When the income or death benefit account value is much higher than the walk away value however, this can be a very difficult choice to make.

It is human nature to try and obtain the most value from any investment. Thus, many investors who own variable annuities end up holding them beyond the original term – longer than they anticipated when the account was originally funded. And too often the investor is disappointed in the market performance which caused the annuity to become something other than for what it may have been intended.

The Rise of the Fixed and Equity-Indexed Annuity

For those who are looking for an opportunity to exit an under-performing variable annuity, there are viable options. Both fixed and equity-indexed annuities offer safety, security and predictable future growth. But most importantly, the owners can walk away with all accumulated funds at the end of the term. There is no fear of giving up possible gains by losing out on a death benefit or lifetime income rider.

Several insurance companies offer fixed indexed annuities with reasonable potential for returns, up front premium bonuses, and the ability to lock gains in each year. The up front premium bonus can help offset the loss of principal in a variable annuity. Additionally, transfers can be done without incurring income taxes should the older annuity have eked out any gains.

Contact Us For Annuity Assistance

Hyers and Associates is an independent agency marketing fixed and fixed indexed annuities throughout the country. Should you own an under-performing variable account and are in need of advice or an exit strategy, we can help make a suitable recommendation. Contact us today!

Category: Annuities, Articles

Unfortunately, there is quite a bit of misinformation that has spread about annuity investment contracts. What is not clear is whether these untruths are intentional or a general lack of knowledge, but it is beyond time to set the record straight.

One of the biggest concerns potential annuity investors have is what happens to their money whey they die. For reasons unknown, there is a misconception that the insurance company keeps the balance of the account at passing. This is simply not true.

What Happens to My Annuity at Death?

The majority of annuity contracts are either fixed, indexed, or variable in nature. These investments are either in deferral or are used for regular interest and/or occasional principal withdraws.

In almost all cases, when an annuity owner(s) dies, the balance of the account simply passes to a named beneficiary. The beneficiary designation in the contract will usually list family members and the respective percentages each receives.

Annuity owners often setup their spouse as the primary beneficiary and their children and/or grandchildren as contingent beneficiaries. In some cases, a trust will be listed as a reliable means to distribute the annuity proceeds.

Annuity Beneficiary Designation and Probate

If, for some reason, there is no living person or trust listed as the contract beneficiary, then the annuity would likely be subject to the probate process. In this way, probate court would decide who inherited the annuity proceeds like it would any other asset with no beneficiary designation.

However, even with no listed beneficiary, the insurance company underwriting the annuity would not receive the proceeds. It is important to note that most annuity contracts are designed to avoid probate in the first place. (It is a good idea for annuity owners to regularly check their beneficiary designations as part of any estate plan.)

Immediate Annuity Contracts

There is one type of annuity account, commonly referred to as an immediate annuity where, in one instance, the insurance company can keep the undistributed funds when the owner dies. Immediate annuities are the least common type of contract and only suitable in certain situations.

First, it is important to understand how an immediate contract works. When an immediate annuity is purchased, the owner deposits a lump sum with a chosen insurance company.

The lump sum is then used to create a regular stream of income payable to the insured for a set number of years or a lifetime. In this way, an immediate contract pays a portion of the principal and earned interest each payment cycle.

Lifetime Annuities and Period Certain Guarantees

There are several fail-safe riders that can be attached to an immediate annuity account that guarantee the insurance company will pay back all deposited principal and earned interest during the insureds lifetime or that of their chosen beneficiary. This can be done through what is called a “period certain.”

The term period certain simply means the insurance company is obligated to distribute both principal and interest for a certain number of years. If the insured passes away before the period certain has been satisfied, then the payments will continue to a named beneficiary for the remainder of the contract.

Thus, the only type of annuity that allows the insurance company to keep the undistributed balance of the investment when the owner passes away is a lifetime immediate income annuity account with no period certain.

All other annuity investments will pass the entire balance of the account to the named beneficiaries in a lump sum or through regular installment payments when the owner passes away.

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In summary, almost all annuity investment accounts are setup to pay the entire account balance to the named beneficiaries. The owner of the account has the ability to setup the distribution in a manner that best suits his or her tax, investment and estate planning goals.

Annuities are valued investments for their unmatched safety, regular income distributions and also because they can be setup to avoid probate. It is important to speak with a knowledgeable agent in order to understand what you can expect from your policy now and in the future.

Category: Annuities, Articles, Retirement Planning

As an annuity agent, I am often asked which insurance company offers an indexed annuity with the best returns. And that is not an easy question to answer. There are dozens of companies offering several fixed indexed accounts each.

However, I did come across an annual statement recently that even amazed me – and I have been working with indexed annuities for well over a decade.

Unimaginable One Year Gain In Fixed Annuity

Full disclosure: This was not a client of mine, but the statement was authentic and dare I say mind blowing. This particular indexed annuity returned over 57% during a twelve month cycle for its owner. That was far and away the best one year return I have ever seen on paper.

The aforementioned annuity owner made a 57% interest return on his investment and his interest was locked-in and became part of the principal. (This assumes the annuity owner did not withdraw some of the gains.) That is simply an amazing return for a non-variable investment that has no direct ties to the market.

Indexed Annuity Gains – No losses

To be fair, a return this high is extremely unusual in an indexed account. Most indexed annuities have been returning around 20% over the last twelve months (March to March or April to April.) But this example certainly illustrates the power of indexed accounts.

What other fixed income, insured account can offer returns north of 20%, lock those returns in each year, and do it all without subjecting your principal and earned interest to stock market losses? None that I am aware of.

Understanding Indexed Annuities – Moving Parts

Equity Indexed Annuities Elements of annuity investing that are often overlooked are the spreads, caps, and participation rates.

Several annuity providers monkey around with these numbers from year to year and when they are changed in favor of the insurance company, it can greatly reduce your future earnings potential.

Why do I bring this up? In the case of the person with the 57% rate of return, his spread, cap, and participation renewal numbers did not change one iota on his anniversary date. Thus, his annuity has exact same earnings potential over the next twelve months as it did before.

The annuity provider that credited the 57% is a well known and very well rated company in the marketplace. They offer several terms and accounts to choose from, but their five and ten year accounts are most popular. The unnamed annuity investor who locked-in this massive gain owns a ten year account.

Lock-In Yearly Interest Using Indexed Accounts

Let’s take a step back for a moment and remember the value of indexed annuities. While double digit gains are fantastic during times like these, it is the unprecedented safety these accounts provide that can be most valuable for their owners.

There are several unknowns that can cause you to lose substantial amounts of money in the stock market. We have experienced all kinds of world and economic events over the last decade that have derailed stock markets here and abroad on more than one occasion.

When the market goes down, your indexed annuity principal and earned interest are safe however. You cannot lose money when the market inevitably corrects again and again. If you are more interested in protection from market losses and you still desire the potential for above average returns, an indexed insurance product can be a very wise choice.

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I would imagine that you want to know who offers a fixed annuity that returned 57% in one year. And I will be happy to tell you.

Contact us and we will email you brochures and personal illustrations. Working together, we can decide if an indexed annuity is a suitable investment as part of your overall portfolio.

Category: Annuities, Articles

Indexed annuity accounts credit interest based on the performance of chosen stock and bond market indexes, however they are not variable in nature and have no direct market exposure. This simply means that when the market goes down, there is no risk of losing your invested principal or interest gains from previous years.

During the past twelve months, the markets have performed well and this is good news for those who own an indexed annuity. Many accounts have produced returns of 15%-20% or greater over the past year.

Indexed annuity owners are most reassured by the fact that their earned interest gains cannot be lost in subsequent years if/when the market corrects again.

Indexed Annuities Avoid Market Losses

Equity Indexed Annuities If you have owned an indexed annuity over the past decade, then you have experienced first hand the above average growth, reliability, and safety these accounts provide.

The stock market has twice corrected significantly over the past ten years causing massive losses for investors on both occasions.

Indexed annuities don’t participate in down years however. The worst return you can experience is one that is 0%, but nothing below that number.

But when the market performs well, like it has over the past twelve months, then these accounts can credit significant interest to your principal. Assuming that the interest is not withdrawn, it becomes part of the principal and the account resets for the next year. If the interest is needed, then most annuities allow for a 10-20% annual withdrawal.

Indexed annuities are quite popular for those in need of safe monetary passage during or near retirement. Too much wealth has been lost over the last decade and annuity products offer a secure alternative to the unforeseen risk associated with the stock market.

Choosing a Suitable Indexed Annuity

It is important to understand that returns will vary from policy to policy depending on factors such as the anniversary date of the contract, index account chosen, as well as the spreads, caps and/or participation rates offered by the annuity provider.

It is important to work with a knowledgeable annuity agent before investing so that you know what to expect from your policy. There are several moving parts associated with these accounts and some are simply designed to return higher interest than others. You should review your account each year on its anniversary with your agent so as to maximize its potential.

Are Your Investment Dollars on the Sideline?

Any investment that offers potential returns over 15%, avoids market losses, and protects both the principal and earned interest each year can be a very wise choice for cautious investors. You may have investment dollars sitting on the sideline that you no longer wish to be exposed to significant downside losses.

If you have placed your investment dollars in CD’s, money market or other fixed income accounts to avoid losses, but you still desire the opportunity to experience double digit growth, then you may want to consider an indexed annuity account.

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We are an independent annuity marketing agency licensed with several providers. We offer a wide array of indexed annuities for our clients depending on your needs, goals and investment time horizon. Contact us today to learn more about your indexed annuity options.

Category: Annuities, Articles

It’s April 15th and while many have already filed their tax returns, some are still scrambling to get their documents in on time. Thus, it is an appropriate time of the year to talk about different ways to reduce your income taxes.

If you wish to reduce the amount of taxable income on your 1040 or are contemplating additional deductions, then you need to keep certain insurance policies in mind. There are several insurance and investment accounts that can lower your tax burden when setup properly.

Listed below are a few of the most common strategies and policies.

Annuity Investment Accounts Defer Income Taxes

If you are a fixed income investor primarily using certificates of deposit, then you might be creating unneeded taxable income. Whether or not you withdraw the interest, your CD’s are taxable investments – plain and simple.

If you don’t need income on a regular basis, then you should consider investing in a fixed or indexed annuity account.

Insurance Policies That Avoid Taxes Annuities do not generate taxable income so long as you allow the interest to compound. You can defer taxes in a non-qualified annuity for your entire lifetime if you wish.

If regular income is unneeded, you can determine how much and when you want to withdraw it. Thus, you are in control of how much (if any) of your interest will be taxed.

It is also worth pointing out that fixed annuity accounts offer higher interest rates than most bank savings instruments. Additionally, your deposits are insured up to a total of $300,000 in most states. And no, the insurance company does not keep your principal or interest upon death. All accumulated funds are payable to your named beneficiaries at passing.

Life Insurance Proceeds Avoid Income & Inheritance Taxes

Life insurance may be the single best vehicle for tax avoidance. While these policies should not be sold as “investments” they certainly have all the attributes of a good one. Whole life insurance and indexed life policies are very safe and pay reliable interest based on the fixed internal returns declared by the policy or the chosen market index.

Income Taxes</strong> Life insurance grows tax deferred like an annuity account. If you do not withdraw the interest or gains, then no income taxes will be due – ever. But unlike an annuity, life insurance proceeds pass income tax free to your beneficiaries. That’s right, no income taxes are due whatsoever.

This is why single premium life insurance policies have become so popular. Rather than pay income taxes on the interest generated from your bank CD, you can easily purchase a life policy with the principal. Most single premium life contracts require very little underwriting.

The single deposit would create an immediate death benefit much larger than a CD or annuity account could ever promise and the cash value would grow each year. You would have access to the entire invested deposit (cash value) amount almost immediately if it was needed for an emergency or anything else. And many policies offer an accelerated death benefit that can pay for long term care expenses.

Finally, in states like New Jersey and Pennsylvania, life insurance proceeds made payable to a named beneficiary are not subject to the state inheritance tax. This is a significant advantage over almost all other accounts in states with this unique, additional tax.

Life policies offer guarantees, liquidity, long term care benefits, income tax avoidance and can avoid inheritance taxes as well. Talk about a win win “investment” vehicle.

Write Off Your Health Savings Account Contributions

If you are in the market for health insurance and you are comfortable paying incidental expenses out of pocket, then a health saving account might be right for you. A HSA is a separate account that you can contribute thousands of dollars to each year. And the best part, all contributions can be written off as a tax deduction up to certain individual and family limits.

The funds grow tax deferred and can be withdrawn tax free for qualified medical expenses! If you or your family is in need of additional deductions, then setup your health savings account and contribute the maximum amount each year. And make certain that it’s used to pay for the many qualified expenses that the I.R.S. allows. You should become familiar with what qualifies as a medical expense at the I.R.S. website.

And once again like an annuity, all funds belong to you. Should you later cancel your health insurance or switch to a different type of policy, then you can withdraw all accumulated funds from your HSA. But remember, if the funds are not used to pay for medical expenses then they would once again be subject to income taxes. No penalties would be due however.

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In summary, these are three simple ways to reduce your tax liabilities each year. While one size does not fit all, the strategies can be beneficial for most.

It is always wise to talk with a knowledgeable agent about the “big picture” before purchasing a life insurance or annuity policy and to make sure that you understand any potential limitations of these products.

And you also want to make sure that you know exactly what to expect from your health insurance policy and health savings account as well. A tax advisor should be included in the discussion.

Please contact us to learn more about tax avoidance strategies that can help you preserve more of your hard earned wealth.

Category: Annuities, Articles, Life Insurance, Wealth Transfer

If you are considering investing in a fixed indexed annuity, you should become familiar with a few terms. Almost all indexed annuities have internal moving parts referred to as spreads, caps, and participation rates. The fluctuations of these moving parts can significantly affect your annuity’s rate of return now and in the future.

Insurance companies will adjust their caps, spreads and participation rates each year and in doing so will either increase or decrease your potential rate of return. Thus, it’s a prudent measure to speak with an experienced agent about the renewal history of any annuity provider that are considering.

Annuity Renewal History And Interest Gains

Equity Indexed Annuities Insurance companies with a history of increasing spreads while lowering caps and participation rates in their policies should be viewed with a cautious eye.

Conversely, an annuity provider with a favorable track record of adjustments; one that consistently passes on more interest gains to their policyholders should immediately jump to the top of your list.

There are several factors that will affect the moving parts in your indexed annuity. Overall market volatility, the price of options contracts, portfolio performance of the given insurance company and the overall state of the economy are just a few macro examples.

However, some annuity providers tend to account for these future unknowns better than others. Even when their portfolios are under pressure, they still offer you the opportunity for better gains than many of their competitors.

Understanding Indexed Annuity Caps – Maximums And Minimums

Indexed annuity caps are simply a limit on the amount you can earn in a given time period – usually one year. Many indexed sub-accounts work with a cap no matter the crediting strategy or index you have chosen.

Insurance companies also offer indexed sub-accounts that are uncapped and have no limit to the returns on your investment. Uncapped sub-accounts usually have much larger spreads than those operating with a maximum cap. Yes, both spreads and caps can conspire to increase or decrease your interest gains.

For example, your annuity provider might offer a maximum limit (or cap) of 7% you can earn in an indexed account during the first contract year. If the cap on your earnings potential was lowered to 4% the following year, then your earnings potential has decreased significantly .

The most you could earn would now be 4% in this hypothetical example – as oppose to the 7% renewal you might have been expecting. You the investor would justifiably be upset with such a large decrease in future earnings power.

How Spreads Affect Fixed Indexed Annuity Growth

Indexed annuity spreads work much like caps when they are adjusted annually. The higher the spread, the lower the return will be. In essence, the spread comes off the top each year before any interest gains are credited to your investment principal.

If you were using an averaging index strategy and the spread for that sub-account was 2.5% for example, then only the gains above 2.5% would be credited to your invested amount at the end of a twelve month cycle.

However, if the spread increased to 5.0% upon renewal the following year, the account would need to make over 5.0% before any interest gains would be credited to your invested principal. In this example, the spread has increased by 100% and your potential return has decreased by 2.5%. Again, this type of increase is not favorable to you or your invested dollars.

Fixed Indexed Annuity Accounts And Participation Rates

Participation rates are usually found in point-to-point indexing strategies. The higher the participation rate, the more interest you will be credited with when the market index (S&P 500 for example) is moving up.

Let’s say that you were offered an uncapped, point-to-point account with a 60% participation rate. If the chosen index increased by 10%, then you would receive 60% of the gain or a 6% rate of return on your money that year. If the participation rate renewed at 30% the following year, then you would only be credited with a 3% return on your money – all other factors being equal.

When the insurance company underwriting your annuity makes such a drastic change to the participation rate, which some do, your prospects for reasonable returns are reduced dramatically – even if the overall markets are performing well.

Summary and Annuity Video Presentation

As you can see, fixed indexed annuities not only offer several crediting strategies, but they also have several moving parts such as caps, spreads, and participation rates.

While the crediting strategy you and your agent decide on will go a long way to determine your gains, the moving parts inside the chosen strategy will play just as an important role, if not more important, in determining your interest annuity growth.

It does not matter how well your index and crediting strategy are performing if your money can’t participate in a reasonable portion of the upside. That’s why it’s important to talk with an experienced agent about the renewal history of any insurance company you might do business with.

Request Assistance, Quotes And Illustrations

At Hyers and Associates, we work with hundreds of indexed annuities. We can help you choose a suitable indexed annuity account that fits your time frame and investment needs, but most importantly one that offers you the best opportunity for interest credits now and in the future. Contact us for more information today.

Category: Annuities, Articles

Qualified & Non-Qaulified Annuities Regardless of the type of annuity account you own (fixed, indexed, immediate, or variable) it will fall into one of two categories; qualified or non-qualified. Your options will depend which type you have and/or inherit.

An annuity cannot be both qualified and non-qualified. It’s one or the other. There are significant differences between the two and understanding them can help you plan for taxes, distributions, exchanges, and rollovers. Missteps can cause penalties and loss of principal and/or interest.

What is a Qualified Annuity Account?

A qualified annuity is simply an account where taxes have not yet been paid on the principal, any contributions, or growth in the account. Common examples of qualified accounts are IRA’s, 403(b)’s, 401(k)’s and various other retirement plans.

All distributions from a qualified annuity (principal, interest, and investment gains) are subject to income taxes. The IRS treats these types of accounts differently while you are alive and when you pass away. You must follow certain rules for contributions and withdrawals.

Mandatory Distributions (RMDs) From Qualified Accounts

Owners of a qualified account will be required to take mandatory distributions by the IRS – usually at age 72. These distributions are based on your life expectancy and must be reported as income each year. You can begin withdrawing from your qualified account at age 59 1/2 if you wish. These withdrawals will also be taxable, but not subject to penalties mandated by the IRS.

You can roll over a qualified annuity to another qualified account without creating a taxable event. This might be done to increase the return on your policy or to change investment strategies. However, the same rules will apply when it comes to taxes. So long as you are in a taxable income bracket, income taxes will be due on any voluntary or mandatory distributions from the new account.

What is a Non-Qualified Annuity Account?

A non-qualified annuity is one where taxes have already been paid on the principal – or initial investment. Premium deposits could come from a mature certificate of deposit, a checking or savings account, a brokerage account, or an existing non-qualified annuity.

Only the earned interest is taxable in a non-qualified annuity – and that is only when the interest is withdrawn. If you ever decide to withdraw the principal of the account, then taxes would not be due on that amount. However, you have two options with the earned interest: You can either withdraw it as needed or reinvest it on a tax-deferred basis for a later date.

If you choose to withdraw the interest, you must wait until age 59 1/2 even though this is not technically a retirement account. Otherwise, the IRS (not the annuity company) will penalize you for an early distribution. However, you will never be forced by the government to take your interest or principal out at any age.

Advantages Of Compounding Tax-Deferred Growth

Non-Qualified Annuity Policies
You can also choose to reinvest your interest gains. This highlights one of the most significant benefits of a non-qualified annuity. If the gains are reinvested, then they grow tax-deferred for as long as you wish.

This way, your funds will benefit from the effects of compounding interest. The unneeded taxable income now grows tax deferred and would not be declared each year like it would with a certificate of deposit or money market account.

This is a wise choice if you wish to reduce taxable interest gains in your overall investment portfolio.

What Is A 1035 Tax-Free Annuity Exchange?

This exchange is only possible from one non-qualified annuity to another. This allows you to invest in a new annuity while avoiding taxes on the deferred interest not yet withdrawn from the old annuity. You might do this to increase the returns on your annuity account and/or to lock in a higher interest rate for a set period of time. If your annuity is mature and total liquidity is not an issue, then a 1035 tax-free exchange can benefit your investment returns.

In summary, annuities will always fall into one of the above two categories. How the account is taxed, distributed, rolled over, or exchanged will vary depending on your needs and IRS regulations. It is important to discuss all of your options with an experienced annuity advisor and your accountant before making any changes.

If you wish to know more about these accounts or are in need of advice, please contact the annuity experts at Hyers and Associates today.

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Category: Annuities, Articles, Retirement Planning

As the overall markets have swooned and once plush retirement accounts have lost value, you might be interested in a guaranteed lifetime stream of income.

Commercials are more prevalent and many financial firms are now advertising the merits of this simple concept. But what are the financial products behind these guarantees and how can you benefit from lifetime income?

Lifetime Annuity Income Accounts

Guaranteed lifetime income can only be provided from one financial instrument – an annuity account. Sometimes referred to as an immediate or lifetime annuity, these accounts pay principal and interest for your entire life. In this way, they operate much like a pension plan from a former employer.

How Does Guaranteed Lifetime Income Work?

In its simplest form, a lump sum deposit is made into an annuity with a trusted insurance company. Based on your age, gender and initial initial investment – a monthly stream of income will be generated from the deposit. Principal and interest will be paid out for the rest of your life.

You can fund a lifetime annuity with before or after tax dollars. Some investors choose to rollover an IRA, 403(b) or 401(k) account while others might invest using certificates of deposit, money market funds, brokerage accounts or mutual funds.

What Are The Advantages of an Annuity Account?

Those who invest a portion of their retirement dollars in an annuity will always have the security of guaranteed income. Not only will you receive principal, but you also receive the interest on your investment. Lifetime payments will never decrease and are unaffected by stock and bond market declines. By reducing your exposure to the overall markets, you can be assured that a portion of your retirement is safe.

How Safe Are Annuities?

Annuity accounts are backed by the full faith of the chosen insurance company, but more importantly are insured by the Guaranty Association of the State where you reside. Annuity carriers are one of the most regulated sectors in the financial industry. They must carry reserves to back their claims and they cannot lend your money out.

Recently, large banks like Washington Mutual and enormous investment firms like Bear Stearns have gone bankrupt, but the annuity carriers have withstood the economic downturn. This is due in large part to their highly regulated nature and reserve requirements.

What Happens To My Annuity When I Die?

It will depend on how your annuity has been setup. A lifetime annuity will cease all payments at passing unless you have added what is called a “period certain.” This is insurance speak for a guaranteed period of payments. And some annuities with lifetime income riders will continue to pay to a spouse or will send any remaining balance to your named beneficiaries.

If you purchase a lifetime annuity with a 10 year period certain for example, then all payments will continue for a minimum of ten years. A period certain guarantees that you or your beneficiaries receive the initial investment and interest should there be a premature passing. If you live longer than the ten year period, the payments will continue until passing. Period certain lengths will usually vary between 5 and 30 years if they are chosen.

In other cases, a joint and survivor with life clause can be added for married couples. This clause will guarantee payments for the lifetime of both spouses. Should one spouse pass away, then the living spouse will continue to receive payments for the duration of his or her lifetime.

It is important to note that monthly payments will be greatest when a period certain or joint ownership has not been selected. Choosing a life only annuity will make the most sense for those who do not worry about providing for a spouse or any chosen beneficiaries.

What Are The Tax Implications?

It depends on whether the annuity is funded with qualified or non-qualified dollars. A qualified account is one that has not been taxed like an IRA, 403(b), 401(k), etc. All funds distributed from a qualified account, including a qualified annuity policy, will be taxed as ordinary income.

However, non-qualified deposits (after tax dollars) distributed through a lifetime annuity offer tax advantages to the owner. The annuity will generate income tax with each distribution, however the principal will never be taxed. Only the interest growth is taxed as ordinary income.

The interest is not received all at once, but over the lifetime of the annuity. The majority of the systematic payment each month is principal and thus excluded from taxes. This is often referred to as the exclusion ratio. By spreading out the taxable gains over the life of the annuity, the owner will pay less in income taxes.

What If I Change My Mind?

In most cases, once the stream of lifetime income has been setup it is irreversible. Very few insurance companies allow for a lump sum cash payment in lieu of the monthly payments. There are entrepreneurial companies that specialize in the purchase of lifetime annuity accounts, but the owner will receive less than face value.

However, annuities that are purchased with a lifetime income rider will allow you to turn your income on and off. And they will also allow for a full distribution if you change your mind. The only disadvantage is that you have paid for an income rider that you may not have used.

Is This An Advisable Retirement Strategy?

Most financial advisors will say yes. Annuities have gained popularity during the last decade as the overall markets have not performed well. A recent Business Week article queried a cross section of experts near retirement and many discussed the use of lifetime and deferred annuity accounts to ensure reliable income.

There are those, however, who would still rather invest all of your nest egg in the stock market for their own financial gain. Some stock brokers dislike annuity accounts and trumpet the fees and commissions to agents and the insurance companies. It should be noted that fees and commissions associated with an annuity are no more than any other financial instrument – in fact they are usually less. Let’s remember that brokers have a lot to lose if their clients choose to safely invest elsewhere.

What If I Am Not Ready?

If you want safety and security, but are not yet ready for an income stream, then a tax deferred annuity can be purchased. Deferred annuities grow through compounding interest and can lock in interest rates for a desired number of years. When ready, the owner can transfer their entire deferred annuity into a lifetime account and begin a stream of income.

Deferred annuities usually pay more interest than bank certificates, money market and savings accounts. The owner is under no obligation to setup a lifetime stream of income (annuitize) at the end of the term. Many investors own deferred accounts for their entire lifetime and then pass them lump sum and penalty free to their named beneficiaries.

How Do I Begin?

It is wise to request quotes from several carriers. Monthly payments can vary drastically depending on the insurance company and the internal returns of the policy. Independent agents (like us) can filter several well rated insurance carriers to find the best lifetime account for you.

The agents of Hyers and Associates have access to many insurance providers and can help to ensure a stable retirement for you. Contact us for more information today.

Category: Annuities, Articles, Ohio Annuity, Retirement Planning

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