Upon retirement, you may lose the group health insurance coverage offered from your employer. In some cases, the insurance can be extended for a short period of time, but in most others it may discontinue altogether or become too expensive to maintain.
The dividing line for most retirees is age 65. If you are younger than age 65 and you cannot continue your group health insurance coverage for any reason, the next best option is to purchase an individual or family plan from a provider such as Aetna, Anthem Blue Cross, or United Healthcare among others.
If you are over age 65 and losing group coverage, then you will need to enroll in Medicare Part B (if you have not already done so) and purchase supplemental coverage. The two options available for retirees over age 65 are traditional Medicare supplements and Medicare Advantage plans.
Retiree Health Insurance Over Age 65
Many retirees are age 65 or older when they lose their group health insurance coverage. In some cases, they can maintain their current group coverage, but in many cases they are involuntarily dropped from the plan.
In fact, many large companies are discontinuing health insurance benefits altogether for retired workers over age 65 whether they recently retired or were offered health benefits in the past.
The good news is that those who are both voluntarily and involuntarily losing group health insurance can almost always purchase a supplemental plan on a guaranteed issue basis. In this case, Medicare will be their primary coverage. Those over age 65 must first be enrolled in both Medicare Part A and Part B and then they can best decide how to supplement the gaps in Medicare.
Medicare Supplement Coverage for Retirees
The first option is to purchase a traditional Medicare supplement. There are ten plans to choose from and each offer a varying degree of coverage.
There are no traditional Medigap or supplemental plans that cover prescription drug coverage, so it is wise to purchase a stand-along Part D drug plan unless credible rx coverage is available elsewhere.
Supplemental plans and Part D coverage can both be compared on price and purchased direct (at no additional cost) from independent agents who represent a wide array of insurance carriers.
Medicare supplements are popular because the potential out-of-pocket expenses associated with these plans is very limited and predictable for the insured. Plan F is often purchased as it covers all of the gaps in Original Medicare Part A and Part B.
Additionally, almost all supplemental plans have no network restrictions to navigate. This means the insured can see any doctor or hospital that accepts Medicare patients. Those who purchase traditional Medigap plans can rest assured that they will not need referrals nor will they be turned away because of any network restrictions.
Medicare Advantage Coverage For Retired Seniors
Advantage plans are not quite as popular as traditional Medicare supplements based on enrollment figures. Typically, this coverage is less expensive on a monthly basis and covers all what Part A and Part B cover and some of what they do not.
Those who purchase an Advantage Plan can have the potential for larger out-of-pocket expenses. It is wise to ask the insurance provider about the yearly maximum for out-of-pocket expenses both in and out of network.
It is also preferable to know about any network limitations that might exist with any Advantage Plan under consideration. In some cases, certain medical facilities and doctors will choose not to accept one or more Medicare Advantage Plan. These limitations can become an issue for the insured if an out-of-network specialist or facility is recommended by their primary care physician.
Many Medicare Advantage Plans will include prescription drug coverage thus eliminating the expense of purchasing a stand-alone Part D plan. When deciding between the two options (Medigap and Advantage) it is wise for seniors to speak with an independent agent about both and consider their options both now and in the future.
Understanding Medicare Open Enrollment (AEP)
Typically, Advantage Plans can be changed each year during open enrollment, but the insured is only allowed a one year free-look period if they wish to return to Original Medicare and purchase a traditional supplement.
That is to say, if the insured was enrolled in an Advantage Plan longer than one year and then desired to purchase a traditional supplement, the Medicare supplement provider can decline their application due to ongoing or past health concerns.
Retired Under Age 65 Health Insurance Plans
If you are under age 65 and losing your group health insurance due to retirement, then you will need to purchase coverage in the individual market. There are several well known and highly rated carriers providing both individual and family health insurance.
Health care reform has changed the landscape somewhat, but many plans are still available. Unfortunately, the cost of these same plans has increased with the implementation of the reform efforts, but no longer can children be turned down for coverage. However, health insurance providers can still charge significantly higher premiums for those under age 26 who have preexisting conditions.
Conversely, retirees under age 65 can still be turned down for coverage and/or issued policies with exclusionary riders. It is wise for retirees to shop around with an independent agent and to disclose their health backgrounds.
An experienced agent can recommend suitable and cost effective options for those under and over age 65. And remember, there is no additional cost whatsoever to use an agent to purchase health insurance coverage.
Should no provider be willing to offer health insurance coverage to the retiree, then the high risk pool in the state where the retiree resides can be investigated. The high risk health insurance pool can be the stopgap coverage that will bridge the time until Medicare eligibility at age 65 or until other reform laws allow for better access to health insurance.
Information And Insurance Quote Request
Hyers and Associates, Inc. is a full service, independent agency offering Medicare supplement and individual and family health insurance policies direct to consumer.
We work with the leading insurance providers in several states in order to offer comprehensive and affordable coverage from several highly rated carriers. Contact us today to discuss your best options.
Category: Medicare Supplements, 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
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
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.
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?
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.
Illustration and Information Request
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
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.
Request Information and Illustrations
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
Editor’s Note: As of 2013, Ohio non longer has an inheritance tax. Residents may still be subject to Federal Estate Taxes, however. It is also possible that Ohio residents could pay inheritance taxes on property and assets inherited from a deceased resident of another state.
Furthermore, we still see many of our large-estate clients using life insurance policies to assist with succession and business planning. The information below applied estates settled before 2013.
Countable And Uncountable Assets
If The Taxable Estate Is: The Ohio Inheritance Tax Will Be:
| Between $338,333 and $500,000 |
$13,900 plus 6% of the excess over $338,333 |
| Over $500,000 |
$23,600 plus 7% of the excess over $500,000 |
Most assets count toward the $338K minimum – assets such as real estate located in Ohio, vehicles, bank accounts, stocks and bonds, mutual funds, business interests, annuity accounts, and even the contents of your home.
Life Insurance Proceeds Are Not Taxable
The one asset class that is exempt when calculating an estate’s value is life insurance paid to a named beneficiary. However, if the life policy is paid to the estate for any reason, then it would be counted and therefore taxable. It is important to regularly review existing policies for beneficiary designations.
When paid to a named beneficiary, life insurance policies can and will avoid the Ohio state inheritance tax. With this in mind, a select few insurance companies have designed plans that can help reduce your countable estate.
Guaranteed Issue Life Insurance – 4% Growth
A common concern about life insurance is whether someone can qualify medically. If you are in good health, then purchasing a life contract is very easy at most ages.
The good news is that a guaranteed issue policy has recently been approved for those who are in poor health or who would prefer not to be medically underwritten. This life insurance policy requires no underwriting and can be issued up to age 99.
It is a single premium life contract with an increasing death benefit that requires no monthly payments. A $99,000 thousand dollar deposit purchases $100,000 in immediate death benefit. The death benefit is guaranteed to grow by 4% each year. After year one, the $100,000 death benefit would grow to $104,000 and would increase by 4% each year thereafter.
Advantages Over Traditional Investments
This new life insurance contract could be a very good fit for someone who is older or in below average health. It works somewhat like a fixed annuity in that it guarantees interest, except that the death benefit is not subject to income taxes and would not be counted toward the gross estate for Ohio inheritance tax purposes.
A properly designated life policy offers distinct advantages over a certificate of deposit, annuity account, mutual fund, or brokerage account in that it avoids both income and inheritance taxes for your heirs. And again, the death benefit increases by 4% each year which is superior to most other available fixed rate investments.
In summary, those who need to reduce their exposure to what has been deemed the “Ohio death tax” should consider a life insurance policy. You can purchase a single premium policy that is guaranteed to increase each year. Planning ahead will help you, your estate, and your heirs retain more of your accumulated wealth.
Contact us today to discuss your options.
Category: Life Insurance, Retirement Planning
Gerber Life is now offering Medicare supplement insurance in California. This is the same well known and well rated Gerber Insurance Company that offers life insurance to children.
Gerber Medigap plans are priced quite competitively and in many areas they are the best rates available for those over age 65. Consumers can request personal quotes from independent agents.
Change Your California Medicare Insurance Yearly On Your Birhtday
California is unique in that every year, Medicare beneficiaries can switch their Medicare supplement insurance without any underwriting. This is referred to as the “Birthday Rule” and allows consumers to switch to like or lesser coverage.
For example, those insured under a Plan F with any insurance carrier would be allowed to switch to a new plan F with Gerber or anyone else for that matter. There are no health questions to answer during this personal yearly enrollment window.
Plan J Medicare Supplement Coverage in California
Plan J is no longer for sale by any company in any state. This means that Plan F is the most comprehensive Medicare supplement available for purchase. Gerber Life, Mutual of Omaha, AARP and Stonebridge Life (among many others) all offer Plan F in all of California. We can help you compare quotes with all four and many others.
It is important to note that in June of 2010 Plan J was phased out and newer plans are being phased in. Consumers are no longer be able to purchase Plan J, but will be allowed to keep their existing Plan J or switch to another like or lesser plan during their birthday month.
Using an Independent Medicare Supplement Insurance Agent
It may be wise for consumers to align themselves with an independent agent offering supplemental insurance in CA. There are companies offering new plans all the time and your agent will make you aware of these new offerings.
Typically, when coverage is first introduced is when it will be most affordable to the consumer. The longer the insurance has been available, the higher the premiums will be due to claims experience by the insurance company.
When consumers use an agent, they are buying direct from the insurance carrier. There is never a surcharge for the agent’s assistance. And when plans change (like they will in 2010) or when a new competitively priced supplement has been introduced, then your trusted agent will explain all of your options.
Need Medicare Supplement Assistance in CA?
We are an independent Medicare supplement insurance agency serving all of California. Should you like to view quotes with Gerber Life or anyone else, please contact us to compare the lowest rates in your area.
Category: Medicare Supplements, Retirement Planning
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
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.
Category: Annuities, Articles, Retirement Planning
September is life insurance awareness month, thus we will do our part to discuss the overall benefits of these products. When compared to other financial instruments, life insurance policies have several unique and attractive attributes.
Policies will come in many shapes and sizes with several options for the insured, but it may be most important to simply touch upon the purpose of life insurance.
Life Insurance for Future Obligations
For most of us, there are future obligations both known and unknown. In many cases, term life insurance will be the best product to account for said obligations. Policies with large face amounts are usually quite affordable and can adequately cover future expenses for the insured. Additionally, life insurance proceeds are not subject to income taxes for policy beneficiaries and thus provide a known benefit.
Life Insurance For Mortgage Insurance Debt & Home Loans
Many young families have mortgage debt, student loans, and car debt among other liabilities. Term life insurance provides the needed liquidity to cover these obligations for a surviving spouse. The length of the policy, or term, most commonly is 20 to 30 years. By the time the term has expired, it is conceivable that much of this debt has been paid down and would be easier to manage.
Costs of Raising Children – Coverage For Your Family
Children are another concern for most families. The cost of a higher education is significant at many public and private universities alike. And the inherent costs of raising children is no small amount. Term life can also account for these outlays should they be needed. A twenty or thirty year term life policy will give parents a reasonable grace period of time to see their children grow into young adults.
Life Insurance For Income Replacement
Most people think of disability insurance when discussing income replacement. Life insurance can also serve this purpose for the primary financial provider in a household. Term, universal, and whole life policies will all serve the purpose of replacing lost income. Insurance proceeds give the surviving beneficiaries needed liquidity to cover everyday expenses in times of need.
In all, a well thought out life insurance plan will cover debt while also providing for future obligations such as education and lost income. Term policies protect against the unexpected, provide peace of mind, and literally buy time for young families.
Life Insurance Policies and Tax Advantages
Wealthier consumers use permanent plans or whole life insurance for estate and retirement planning. When structured properly, life insurance can avoid both federal estate and state inheritance taxes. Not all states have an inheritance tax, but those that do may not count life insurance proceeds that are directly paid to a named beneficiary as part of the estate. New Jersey and Pennsylvania are two such states.
Whole life plans also immediately increase the value of an estate to provide needed liquidity for the beneficiaries. The proceeds can be used to pay taxes and expenses in order to avoid a quick sale of valuable assets. In other cases, permanent life might be used to keep a business afloat or to buyout a partner. In other words, guaranteed whole life has several advanced uses for those who need to protect an estate or a business.
In summary, there is a strong need for consumers to be properly insured. Whether it is to protect wealth or to provide for their families, life insurance policies are an extremely important piece of any financial plan. Contact us today to see which life insurance policies might best fit your family or business needs.
Category: Life Insurance, 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
Ohio has passed legislation allowing for partnership policies to encourage the purchase long term care insurance (LTCi).
Only a few insurance companies offer these plans, but not all LTCi policies offered today are partnership qualified.
By owning a qualified plan, insureds can be eligible for Medicaid benefits through the state without depleting all of their assets.
How Does The Ohio Long Term Care Partnership Plan Work?
In a nutshell, consumers can protect the same amount in personal assets as each dollar paid by the insurance company for long term care related benefits. In this way, consumers do not have to spend down their assets to state-mandated levels to qualify for Medicaid.
For example, if $250,000 worth of long term care insurance is purchased by a consumer and later exhausted, then the insured can retain $250,000 and still qualify for Medicaid benefits.
Other variables such as income and net worth will factor in before Medicaid benefits are immediately available, but the $250,000 in this example is protected from recovery for the insured, spouse and/or the heirs. In effect, the State of Ohio is rewarding those who plan ahead.
Who Should Consider Partnership LTCi Coverage?
Given the cost of extended care (the average in Ohio is over $85,000 a year), most should consider some form of LTC insurance. However, consumers with a moderate net worth and income may benefit the most from a qualified partnership plan. If a couple with a net worth of 3-4 hundred thousand dollars each purchases an average size policy, then they can protect their home and life savings for each other and their heirs.
An average policy can pay $175 a day (365 days a year) for four years. The total ($175 x 365 days in a year, multiplied by 4 years = $255,500.) This hypothetical couple could shelter $511,000 from Medicaid recovery should they exhaust their policy maximums.
Higher net worth couples (say those worth one million or more) might benefit less from a partnership plan if they purchased a similar policy as the one used in the example above. While they could shelter $511,000 between the two of them, there would still be attachable assets if the $511,000 was exhausted.
These clients might consider larger policy maximums, hybrid LTCi or traditional coverage that can provide benefits for at least five years. Five years is a typical look-back period. That window of time allows owners to shelter assets from Medicaid recovery.
Additional Long Term Care Benefits & Riders
Almost all LTCi coverage contains inflation protection. This allows the overall benefit amount to grow over time and will increase the amount of sheltered assets for the insured. Typical inflation riders will increase the daily benefit amount by 3-5% yearly.
Be advised that not all inflation riders will qualify for partnership coverage. In most cases, the inflation rider must compound for life. Ones that stop compounding after a set number of years will not qualify in Ohio.
Additionally, couples can purchase a rider that allows them to share each other’s benefits should one exhaust their own policy maximum. Should one spouse need care and spend all of their benefits, then that spouse can tap into the healthy spouse’s benefit pool. These are but a few of the more popular riders available with LTCi plans.
How Common Are Partnership LTC Plans?
There are several states offering these types of policies and a handful offer reciprocity. That means you can purchase your policy in Ohio, then receive care in another State.
Currently, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Idaho, Indiana, Kansas, Minnesota, Missouri, New York, Nebraska, North Dakota, Oklahoma, Oregon, Pennsylvania, South Dakota, Texas and Virginia all offer partnership long term care insurance in various forms. Rules and regulation will differ between states.
Contact Us To Compare LTC Quotes & Illustrations
In summary, those who wish to ensure a legacy to their heirs while also providing peace of mind to their families should consider a long term care insurance policy. New partnership-approved plans allow consumers to guarantee that at least a portion, if not all, of their estate, is sheltered.
Savvy consumers can pass on sizable sums to their beneficiaries without spending down all of their assets. This will allow for Medicaid benefits to begin earlier while retaining assets for a healthy spuse and/or children.
Consumers can learn more about partnership plans and coverage options at the Ohio Department of Insurance’s website.
Category: Long Term Care Insurance, Retirement Planning
A 403(b) account is also known as a Tax Sheltered Annuity or TSA. These accounts can take many forms, but most typically are setup as a fixed or variable annuity. Teachers, employees of non-profits, and certain ministers can contribute during their working years should their employer offer this retirement option. Other investment options might include mutual funds and/or indexed or variable annuity accounts.
Typically, 403(b) retirement accounts are conservative in nature – especially if they use a fixed or indexed annuity as their primary investment option. Deposits in fixed investments will not fluctuate with the whims of the stock market and thus provide safety for teachers and the others who invest in them. Conversely, variable annuities and mutual funds will rise and fall depending on market conditions.
Can I Transfer My 403(b) To Another Annuity When I Retire?
The answer is yes. Retirement or separation of service from employment are both cause for transfer. Depending on your age, you can either rollover your funds to another TSA account or an Individual Retirement Account (IRA for short). Rollovers can be advantageous for those who want different investment options, higher guaranteed rates of return, continued tax deferral, and the ability to insure larger sums of money.
Is My 403(b) Insured?
Yes, but it is only insured up to certain limits depending on the investment options chosen. Variable annuities and mutual funds are not insured whereas fixed and indexed annuities are insured by your resident state’s Life and Health Insurance Guaranty Association. Limits can vary by state, but fixed and indexed accounts are usually insured up to $250,000 per account. Most Associations allow for up to three accounts with three different annuity providers for a total insured maximum of $300,000 per individual.
Thus, if you own a 403(b) worth $300,000 at retirement, you can transfer $250,000 into one separate fixed or indexed annuity and invest $50,000 in a separate account. Although, there are many annuity accounts wiht well over $300,000 today. Conservative investors may consider taking advantage of this rule.
Taxes and Required Minimum Distributions
A rollover or direct transfer would not be a taxable event if the funds are deposited into a new qualified annuity or other qualified investment account. Qualified accounts are ones where the entire balance is subject to future income taxes. All withdrawals from a qualified account are taxed as ordinary income to the owner.
When the account owner reaches age 70 1/2, then the IRS requires what is called a Required Minimum Distribution (RMD) based on life expectancy. The IRS has created life expectancy tables for account owners and their beneficiaries detailing the percentage that must be withdrawn each year.
What Happens at Passing?
At passing a 403(b), TSA, or IRA will transfer to your named beneficiaries. In most cases a spouse can adopt the account as their own and will only need to take a distributions of he or she is 70 1/2. If the beneficiary is your child, then they can withdrawal the amount in a lump sum and pay income tax or rollover the funds into a Beneficial IRA. Beneficial IRA’s (sometimes called multi-generational IRA’s) will require mandatory distributions regardless of age, but can defer taxes on a majority of the accumulated funds for the child’s lifetime.
In summary, 403(b) owners including teachers and ministers have several options upon retirement. Working with a knowledgeable advisor can allow for better returns, insure large amounts, and pass funds to named beneficiaries with fewer taxable consequences.
Contact us for more annuity information today.
Category: Annuities, Articles, Retirement Planning
Up until a few years ago, consumers had few choices when it came to long term care insurance (LTCi).
Traditional policies that provided a certain amount monetary reimbursement were the norm. Policies could be designed to cover expenses for a few months or much longer period of time – even providing benefits for the insured’s lifetime.
For example, consumers could purchase coverage that would provide $100 a day in benefits for a period of three years. When calculated, the $100 daily benefit multiplied by 365 days in a year for 3 years would create a $109,500 “pool of money” available for care.
This pool of money would pay for care in a nursing home, assisted living facility, adult day care, or in the personal residence of the policyholder once certain criteria had been met. In some cases, these funds could be used to reimburse care provided by a family member.
When the pool of money was depleted, the traditional policy would provide no more benefits. If the policy was never used however, the owner would lose the investment of his or her premium payments. Thus, some seniors opted not to purchase these policies, deciding instead to rely on their families or current savings in the event that care became necessary.
Return Of Premium Insurance Rider
With the cost of health care rising rapidly, and a single day in a nursing home costing $175 or more in most major cities, self insuring is a risky proposition. Relying on family is an alternative, but not necessarily a viable one. Unfortunately, most families do not have the time, funds, or ability to provide around the clock care to a loved one.
The insurance industry realized that consumer needs were not always being met with long term care policies. While traditional policies were satisfactory for some, many seniors wanted more guarantees in the event their policy was never used.
Thus, these traditional policies added a “return of premium” rider. If the policy was not used over a set period of time, say 10 years, then the insurance company would return a portion (if not all) of the premiums to the policy owner or a family member. This, like any other rider, came at an additional expense to the purchaser.
Long Term Care Insurance Hybrid Policies
In response to customer and agent demand, insurance companies have designed what can be best described as hybrid or linked policies. These policies combine the benefits of an annuity or life insurance policy with a traditional long term care contract.
With hybrid policies, the consumer has the guarantee of long term care benefits, but if no care is needed, the contracts all offer the promise of monetary benefits to the insured and his or her beneficiaries.
Hybrid Life Insurance Policies for LTCi
Hybrid life policies come on a few different shapes and sizes. One policy links long term care to a single premium life insurance policy. With this plan, the insured deposits a desired one-time premium into a policy. Depending on the age, gender and health of the client, an immediate pool of money is created for long term care. At the same time, an immediate death benefit is created by the life insurance contract.
Take, for example, a healthy 65 year old non-smoking woman with $175,000 in liquid assets. If she deposits $50,000 into the single premium hybrid life account, approximately $87,000 in long term care benefits would be created immediately. There would also be a death benefit to her beneficiaries of approximately $87,000 created from the life insurance component of this account.
At an additional on time cost, this same woman can select a benefit rider that would provide approximately $260,000 in long term care benefits as oppose to the original $87,000. She would also have access to her original $50,000 investment should the funds be needed elsewhere.
In this example, she receives guarantees on her investment as well as protection from the high costs associated with a nursing home stay. In addition, she would still have $125,000 in assets at her disposal that could be used for a traditional or long term care annuity.
There are several types of hybrid life plans; this is but one example. Some allow for joint ownership while others must be purchased individually. Working with an independent agency like ours, consumers can compare several variations of these linked products.
Annuity Hybrid Long Term Care Accounts
Another example of combination type plans links long term care benefits to a single premium deferred annuity. This product begins as an annuity with either a lump sum single premium deposit. If no care is needed, the annuity gains interest like any other fixed annuity and is available for the insured’s financial needs.
However, if the owner/annuitant needs care in a nursing home or elsewhere, a formula will be used to determine the monthly benefit amount available. Continuing on the example used earlier, a healthy 65 year old woman who deposited $150,000 into this account would have the advantages of tax-deferred, safe and insured growth in the annuity and approximately $4,700 a month in long term care benefits for 36 months.
At an additional one-time cost, a benefit rider can be added to the policy providing a $4,700 monthly benefit for her lifetime. Concerning these types of policies, the additional benefit rider is usually a wise purchase in order to obtain maximum guarantees.
Hybrid Long Term Care Annuity Multiplier
The newest addition to the hybrid marketplace is another variation of the long term care annuity. This product also functions exactly like a fixed annuity, but has a long term care multiplier built into the policy.
There is no premium rider attached to this medically underwritten annuity policy. Instead, a portion of the internal return in the contract is used to pay for the long term care benefit. Long term care coverage is calculated based on the amount of coverage selected when the policy is purchased.
The insurance company offers a payout of 200% or 300% of the aggregate policy value over two or three years after the annuity account value is depleted. For example, a policyholder with a $100,000 annuity who had selected and aggregate benefit limit of 300% and a two year benefit factor would have an additional $200,000 available for long term care expenses after the initial $100,000 policy value was depleted.
The policy owner would spend down the $100,000 annuity value over a two year period and then receive the additional $200,000 over a four year period or longer. In this example the contract pays $50,000 a year for a minimum of six years, but care will last longer if less than the $50,000 benefit is needed each year. Again, if long term care is never needed the annuity value would be paid out lump sum to any named beneficiary.
These scenarios are only basic examples of how hybrid policies work. The coverage will be different from person to person depending on age, health, gender, premiums and benefits requested. In order to get an accurate proposal, an illustration would be required. We can help you compare illustrations from several carriers.
These innovative products can meet consumer demands and provide more guarantees by combining traditional long term care insurance with the advantages of life insurance or annuity policies. Thus, consumers who utilize hybrid policies can avoid self-insuring against catastrophic long term care related expenses while still providing living benefits to themselves and a legacy to their heirs
Long Term Care Insurance Providers
We offer traditional long term care coverage from Allianz Life, Genworth, John Hancock, Lincoln Financial Group, Mass Mutual, Mutual Of Omaha, Prudential, and others.
We work with American Equity, Genworth, Old Mutual, One America, Money Guard, and Mutual of Omaha to provide hybrid long term care policies.
Category: Articles, Long Term Care, Retirement Planning, Wealth Transfer
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
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