If you’re planning for present or future income, you should consider an annuity. These safe and insured investments have worked for investors for over 125 years. And they are specifically designed for growth and income.

Everyone wants a secure retirement with a stream or worry-free income. There are many ways to create reliable income. It’s wise to have more than one option in case other investments fail to perform. Annuities are a smart way to backstop your retirement goals.

Interest Rates Are Up

As of the writing of this post, interest rates are up – and still increasing. When bond rates go up, so do annuity yields. You can lock in some of the most competitive guaranteed rates of return we’ve seen in two decades. Many annuity accounts yield close to 6% guaranteed for terms of 3-10 years.

This is also advantageous for immediate annuity accounts – and fixed-indexed annuities with guaranteed income riders. Whether you need income now or you are planning for future income, locking in these historically high rates creates fantastic passive income opportunities.

Policies can be set up with qualified and non-qualified funds. Many of our clients use both post and pre-tax money when funding their accounts. Annuity companies accept all type of IRA money for deposit.

Fixed and Immediate Annuities For Income Now

If you’re over age 59 1/2, you can take income from any type of annuity account without IRS penalties. Fixed annuities are very popular with our clients. These accounts work like bank CDs allowing investors to withdraw systematic income without touching their principal. For example, $500,000 yielding 6.00% would generate $2,500 a month of passive income without decreasing your principal.

Most of our clients invest in a few different fixed annuities by using a laddering strategy. This means their accounts have different maturity lengths. Some of their funds are invested for shorter terms of 2 -4 years while others are longer term in nature. This way, some of their principal matures every year or two and is fully liquid. All the while they are earning systematic monthly or yearly income.

Immediate Annuity Accounts For Larger Income Streams

Immediate annuities are also popular for our clients who want income now. The primary difference with immediate annuities is they pay principal and income – not just income. This means your passive income is higher, but you have less access to your invested principal.

Most immediate annuities are set up to create lifetime income. They can also be established with maturities of 5, 10, 20 years, etc. And no, the insurance company does not keep your money if you die early. Almost all immediate annuities allow for the residual principal to be paid to your beneficiaries.

For example:  If a 65 year old male invested $500,000 today and wanted monthly payments for the rest of his life (with a cash refund), he would receive over $3,000 a month from an A+ rated carrier. If he added his 65 year old wife, the annuity would pay nearly $2,700 for both of their lifetimes. That is simple, easy, and reliable passive income.

What if I’m Under Age 65 and Want Passive Income Now

The first thing to know is the IRS treats non-qualified (post-tax) annuities differently than other investments. Interest withdrawals from non-qualified annuities are subject to the 10% IRS early withdrawal penalty if you’re under age 59 1/2.

The way around this penalty is to create an immediate annuity with a lifetime income distribution. This strategy can also be used for qualified (IRA, 401K, 403B) money. While you cannot avoid the IRS penalty using a traditional fixed annuity for passive income, immediate lifetime annuities are the workaround for those who have not yet reached age 59 1/2.

Passive Income Later Using Deferred Growth

Fixed-indexed annuities with income riders are extremely valuable investments for those interested in future income. These unique policies offer premium bonuses and guaranteed yearly increases to the income-generating account.

Income rollups can increase the income-generating account by 6-7% or more each year. Additional growth is possible with yearly indexed gains as well. You will know exactly how much future income is available each year as your policy grows. In a high interest rate environment, these accounts illustrate very well.

Annuities For Guaranteed Deferred Income

Deferred income annuities are yet another option. While they may not have the growth potential of a fixed-indexed annuity, they offer guaranteed future income. And cost of living riders can be added increasing future payments each year. Some of these are tied to inflation metrics like the CPI or COLA numbers.

Our clients who want guaranteed future income while also taking advantage of current rates are locking in deferred annuities for the long haul. This ensures large income payments when they are ready to activate their income stream. It also allows for tax-deferred growth in the meantime.

Contact Us For More Information

Hyers and Associates is an independent annuity brokerage with over 25 years of experience. We can help you shop for the best accounts offering passive income now and/or in the future. Contact us today to discuss your best options.

Depending on your situation, usually you’ll have several options when inheriting an annuity. Your decisions can have significant effects on withdrawals, taxes, and future investment options.

That’s why it’s important to find the right help when deciding how to proceed. A good accountant, annuity broker and/or financial advisor can help you maximize your inheritance.

Different Options For Different Relations

Your options with an inherited annuity will depend on who you are. Spouses typically have the most flexibility. In most cases, a spouse can either continue the annuity, end the contract and take a full withdrawal, or take systematic withdrawals over time. If it’s a well-performing annuity, it can make sense to keep the policy as is. Other times, it’s a good idea to end the contract or start withdrawals in order to fund a more competitive product.

Children of the annuity owner usually cannot continue the contract as a spouse might. This means the child (or children) must begin taking withdrawals. This can happen all at once or over time. If there are significant tax-deferred gains in the annuity, then systematic withdrawals may be wise in order to reduce income taxes.

Extended family and non-relatives will have similar options as would a child. These beneficiaries are usually required to take a full withdrawal or systematic payments. Non-children may have to withdraw all funds over a shorter time period, however.

The reason is that most annuities grow tax-deferred, but not tax-free. IRS rules require distributions on a taxable basis. You do not get a stepped-up basis when inheriting an annuity.

Qualified vs Non-Qualified Funds

There is some confusion with these two terms, but they simply refer to the contract’s tax status. Qualified annuities are those where the original deposit was not taxed. In other words, they are retirement accounts. Most commonly they are IRA accounts, but can also be 401(k) or 403(b) accounts as well.

Non-qualified funds are those where the original deposit was already taxed. Non-qualified annuities are funded with post-tax money from the bank or another non-qualified annuity… perhaps one that was transferred using a 1035 tax-free exchange. That’s not to say there can’t be tax-deferred gains in a non-qualified annuity. There usually are, but the deposit will always have been made with post-tax dollars.

The important thing to know is that the IRS treats these two types of money differently. Your options when inheriting a qualified annuity are much different than those with a non-qualified policy.

Inheriting A Non-Qualified Annuity Policy

Again, the rules vary depending on who you are, but non-qualified annuities allow for more flexibility when the owner/annuitant has passed away. The insurance company will send you paperwork detailing your options. Spouses of the deceased have the most as mentioned above.

Sometimes it makes sense to keep the policy going, other times it’s wise to take it out all at once – or systematically over time. In other cases, a 1035 tax-free exchange into a new policy is a wise thing to do. It depends on your financial needs and how much tax-deferred growth exists in the contract.

If you’re a sole inheritor and there are significant deferred taxes, then stretching the payments is wise… especially if you don’t want to jump into a higher tax bracket.

Non-Qualified Stretch Annuity Options

One option for the children and/or spouse of the deceased is to stretch the policy proceeds over their lifetime. This way small incremental payments can be withdrawn based on the beneficiary’s life expectancy.

This is a very smart way to reduce taxable income while generating a pension-like income stream for life. Not all annuity companies offer this option, however.

In many cases, you have to transfer the old annuity you’re inheriting (using a 1035 exchange) to a new one that allows for the non-qualified stretch option. There are a handful of large, well-rated insurance companies specializing in non-qualified stretch annuity conversions.

Choosing the right one is important. Since this is typically a long-term decision, you want a policy offering competitive rates and diverse investment options. Our independent brokerage can help. We’ll illustrate the top options available in the fixed MYGA markets and highest indexed annuity accounts for your review.

Qualified Annuity Inheritances

Congress recently changed the rules when it comes to inheriting qualified funds. This is true whether it’s an annuity or any other investment. The line in the sand is the year 2020.

If you inherited your qualified funds before 2020, typically you can stretch payments out over a lifetime. However, funds inherited after 2020 must now be distributed in their entirety over ten years. After ten years, there can no longer be any funds left in the policy.

In other words, the funds must be completely withdrawn and taxes paid on the principal and interest. This is frustrating for consumers as this was not how IRA rules were originally established. Now it’s much harder to defer taxes on most accounts.

The rules still are evolving, but options are limited. There are some annuities designed for ten-year drawdowns if you inherited your annuity after 2020. We will illustrate the top indexed and the best fixed-rate annuity options for you in this category as well.

Choosing The Best Path Forward

The information above is a general explanation that applies to most annuity beneficiaries. It is not tax advice. When inheriting an annuity, you’ll want to consult your accountant and talk with a knowledgeable annuity broker.

This way, you’ll be informed as to all of your choices. There isn’t always a right or wrong way to withdraw your portion. Siblings may choose different options altogether for example.

What’s important is examining all options carefully. Especially when it comes to non-qualified stretch accounts. This is the option we see that’s most frequently overlooked as most insurance companies do not adequately explain it.

Contact us for a free annuity consultation today.

There are several items to consider when shopping for annuity policies. These safe and secure contracts offer several benefits, but their features can vary significantly.

Purchasing the right annuity at the right time will provide years of reliable growth and income. But most importantly, you also get peace of mind. It’s comforting to own an investment you don’t have to worry about. In this post, we discuss the most important features to look for when buying an annuity.

Company Strength & Verified Ratings

When buying an annuity, you’re usually investing for a few years or more. While some contracts are only one year long, many have longer terms. It’s not unusual for our clients to purchase policies with terms of five to ten years… especially when interest rates are high.

That’s why it’s essential to choose a strong insurance company. Almost all annuity companies are rated by independent firms. AM Best is the most well-known company, but there are several others specializing in this area. These rating agencies audit the books, rank their investments, and publish their findings on a regular basis.

You can also request financial reports to ensure you’re dealing with a financially strong company. Beyond that, you can dig into their financials as well. All insurance companies publish annual reports detailing their investments, reserves, capital surplus, and much more. You can also learn about how long they’ve been in business and any affiliations they might have.

Many well-rated insurance companies specializing in annuities have been around for decades. Some have been around for over a hundred years. They’ve weathered all types of market cycles. There is a wealth of public information available. Just ask us and we’ll send it to you.

Common Annuity Liquidity Features

Beyond company strength, we are asked most often about liquidity. Our clients want to know if they can access their funds (principal and interest) penalty-free.

Most annuities offer liquidity options. Many contracts offer free interest withdrawals after one month. Others will offer 5-10% principal withdrawals after 12 months. These features satisfy most of our clients. Annuities work great for those who want regular income.

It’s important to know, however, not all policies offer free liquidity. Some contracts might offer a higher rate, but charge a penalty for withdrawals before the annuity is out of surrender. In these cases, you might see a rate reduction if you want access to your principal or interest.

What About The Death Benefit?

This is a very important annuity feature. You should always ask if your annuity is free of surrender penalties at death. You would not want your beneficiaries to pay a penalty if you passed away in year five of a ten-year term.

Most contracts include this benefit at no cost, but some do not. We do see some of our younger, married clients go without this feature if they can lock in a higher rate. When set up correctly, a spouse can continue an annuity at first passing and avoid any surrender penalties.

How About Crisis Waivers?

Insurance companies understand policyholders’ needs and concerns. Some annuity owners may need additional policy liquidity for healthcare needs or a terminal illness.

Many carriers offer policies offer with special liquidity provisions if the owner is confined to a hospital or a Long-Term Care facility. This includes waiving any surrender charges and/or Market Value Adjustments if one of these situations occurs. Be sure to ask if you want this benefit to be part of your policy as not all companies include it.

Understanding Tax Implications

First, please know we are not accountants. Our independent annuity brokerage has been specializing in annuities for over 25 years, but we don’t give tax advice.

That being said, annuities offer great tax advantages. With a non-qualified annuity policy, you can defer taxes your entire life. And at passing, your beneficiaries can even stretch out accumulated taxes over several years using non-qualified stretch provisions.

Additionally, 1035 Tax-Free Exchange rules allow owners to move from one annuity to another without incurring any income taxes. Please be advised that the 1035 Exchange process must be done through proper paperwork, so make sure you are working with a broker who understands this process.

Pre-Tax, Qualified Accounts

Qualified accounts like IRA, 403(b) and other pre-tax annuities work similarly to non-qualified policies. When invested in an annuity, these funds also grow tax-deferred until Required Minimum Distributions are required or the owner passes. The principal is always taxed, however. That’s the primary difference.

Corporately Owned & Business Entity Policies

Corporately owned annuities have unique tax implications. They can only be non-qualified policies, but unlike the policies mentioned above, they do not grow tax-deferred. Even if you do not withdraw your interest, it’s still considered taxable income by the IRS. Thus, you will receive a 1099 each year on your policy gains.

That’s no reason not to consider an annuity that’s owned by a corporation or other business entity. If you’re worried about the safety of bank deposits or simply want higher rates of return, then a corporate annuity policy can protect and preserve your company dollars.

It’s All About Timing

It goes without saying that the best time to buy a fixed or indexed annuity is when interest rates are high. However, it’s important to know what factors drive fixed annuity rates higher.

The mistake some people make is watching the Federal Reserve too closely. Yes, their words and actions influence bank and lending rates, but annuities are not bank instruments. They are offered only by insurance companies.

Insurance company portfolios primarily consist of bonds. And bond rates power annuity yields. These are investments like US treasury bonds, mortgage securities, and high-grade corporate debt. And these yields move in real time with the economy. So even though the Federal Reserve might be raising or lowering rates, yields on treasuries and bonds can be moving in different directions.

In other words, don’t put too much emphasis on the Fed. You need to watch US treasury rates to have a better idea of which direction annuity interest rates are going. If bond rates are decreasing, then so will annuity rates.

Applying This Knowledge To Other Annuities

Beyond interest rates, you want to look for policies that fit your time horizon and investment goals. If rates are high and you think they’ve peaked, then it’s wise to purchase a longer term annuity if that fits your goals.

You might consider investing in a 5, 7, 0r 10 year annuity when you can lock in high rates. Why? Because interest rates will likely be lower in the future. Many of our clients are locking in rates close to 5.50% right now because they know this opportunity in 2023 won’t last long.

Indexed Annuities

This same logic applies to the best indexed annuity accounts. When interest rates are high, then spreads, caps, and participation rates will be higher too. Locking in higher indexing metrics will translate to above-average growth when the markets inevitably move higher.

Hybrid Long Term Care Policies

Most hybrid annuities are also based on fixed interest rates. If you’re thinking of saving for long term care expenses with a LTC hybrid annuity, then buy one when interest rates are up. Your policy growth will be operating off a higher base going forward. This translates to increased LTC benefits as the policy itself grows.

Deferred Income and Immediate Contracts

These types of policies are perfectly suited for generating guaranteed income. This could be for your life or for a set number of years. You’ll get the largest income streams when you time up your initial purchase. This is why working with an experienced, independent broker is so important.

Finding The Best Annuity Policies

There’s a lot to think about when shopping for any type of annuity plan. There are nuances to each contract that can affect the safety, growth, and access to your investment in the future.

It’s smart to work with an experienced independent annuity brokerage like ours. We’ve been specializing in annuities for over 25 years, We will educate you on all of your most suitable options.

Fixed annuities are hot investments right now and for good reason. They offer guaranteed fixed rates, competitive returns, and are also incredibly safe investments.

Choosing the best fixed annuity at the right time maximizes growth and income. Currently, short-term annuity accounts offer some of the highest returns seen in decades. This is great for investors who want full liquidity in a short amount of time.

In fact, shorter term accounts (five years and under) have higher yields than most longer term policies. Many one, two, three, four, and five-year annuities provide better returns than accounts with terms of six to ten years.

There is a reason for this. The investments that power annuity returns have terms as well.

Who Offers Short Term Annuities?

First, a little background. Only insurance companies offer annuities. Even if you get your annuity from someone at the bank, it’s still an insurance product from an insurance company.

And insurance companies have rules about what they can purchase to fund their portfolios. The primary assets they purchase are United States Treasury Bills. And when you look at their returns, you will see shorter durations offering higher yields than longer maturities.

This is known as an inverted yield curve. It does not usually bode well for the economy, but it allows for very competitive annuity rates. (An inverted yield curve is linked to an economic recession.)

Other than Treasuries, most insurance companies purchase corporate debt and bundled consumer debt. Insurance company portfolios are usually at least 70% Treasuries. And with government debt offering some of the highest returns in years, annuities are highly competitive… and safe.

One Year Annuity Accounts

The shortest annuity term available is one year. And there is only one company offering a one year account. After twelve months, your money is free and clear of surrender charges. It is completely liquid.

You can take your entire principal and interest growth and invest your funds elsewhere. This is a great account for those who feel yields will be higher in the future. It’s also appropriate for those who have their funds earmarked for something else in the future.

Best Rates On A Two Year Annuity Policy

There is much more competition in the two year (and longer) annuity durations. While everyone’s idea of a short term investment is different, most would agree that two years is not long when considering today’s yields.

Two year policies allow investors to lock in higher rates and shop with different insurance companies. These policies are also great for those who want to incorporate a laddering strategy. It can be wise to have different tranches of short term annuity money come due every year or so.

Medium Term Duration Of Three Years

Three year fixed annuities are a bit longer, but the yields are just as attractive. These policies are on the longer end of a short term strategy, but compare favorably with certificates of deposit at the bank.

In fact, most offer higher returns. And insurance companies have very strong reserve requirements. That makes it all but impossible for there to be a run on an insurance company that exposes customers to any losses.

Our clients use longer term annuity policies for savings and accumulation toward retirement. In other instances, 3-5 year terms are used for regular interest withdrawals.

Many of our clients want to guarantee a regular fixed income stream without reducing their principal. Annuities of all terms are great investments for both savers and those who desire systematic income.

Contact Us For More Information

Of course, we offer annuities with longer durations as well. You can view all of our options by clicking here.

In fact, some policies offer guaranteed rates for as long as 20 years. In these uncertain times, it may be wise to diversify your portfolio. Stocks and bonds are extremely volatile and hard to count on for regular income. Additionally, we’ve seen at least three enormous banks fail as well.

You may want a safe and insured asset that you can count on. Short term annuity accounts offer a reliable and secure place to ride out financial storms.

There are several ways to maximize your fixed annuity policy for growth and income. It’s important to select the right type of account based on your financial needs.

First, you should know that fixed annuities can credit interest in two different ways. Most grow through compounding interest, but there are some that credit simple interest only.

So which is better? It depends on your rate of return, but also whether you withdraw the interest. We’ll compare compound and simple interest annuities below and discuss which policies pay best in different situations.

Compounding Annuity Interest Accounts

Einstein said that compounding interest was one of the great marvels of finance. He was correct. But you can only take advantage of compound interest when you take no withdrawals. Your interest only gets interest (that’s the compounding part) if you don’t take it out.

Let’s take an example of a 5-year annuity account yielding 5.50% compound interest. Assuming a $100K investment and no withdrawals, the account is worth $105,500 after one year. Then $111,302.50 in year two, $117,424.13 in year three, $123,882.45 in year four, and after 5 full years, the total is $130,695.98.

After five years, your account had gained $30,695.98. Those are impressive gains.

And that’s the magic of compounding interest, your growth accelerates when the interest gains interest. Most fixed annuities offered today are compounding policies. They are great tax-deferred investments that work well for savings and growth.

But if you plan on taking regular withdrawals, it’s important to consider simple interest annuity accounts as well. There are times when the math favors these types of accounts.

Understanding Simple Interest Annuities

Simple interest annuity accounts do not compound your gains. You get a fixed, declared rate for your chosen term. It does not matter if you take withdrawals.

For example, let’s say you invest $100K into a 5-year fixed annuity offering a 6.00% simple interest rate. This would translate to $6,000 yearly interest gains – or $500 monthly. That’s perfect for those who want a regular income stream without touching their $100K principal.

But even if you do not withdraw your $6,000 interest, you would only receive $6,000 in interest in the following years. This means your policy credits $6,000 a year each year no matter what. After 5 years, you would have made a total of $30,000 (5 years at $6K a year). That’s simple interest. The math is easy and your gains are set from the start.

Simple and Compounding Interest Credits

Let me start by saying insurance companies aren’t dumb. They do the math too. That’s why you’ll see that Simple Interest annuity policies usually have higher yields than Compounding annuity accounts. Insurance companies offering both types will credit different rates for the same term.

If we use the two five-year examples above, you can see that a 5.50% compounding rate is nearly equal to a 6.00% simple rate. In fact, the compounding policy would yield a tiny bit more.

Also, know that these numbers are not pulled out of thin air. This is how the comparisons usually shake out. There is a spread between the two types of accounts that make them align in terms of overall interest credited.

Choosing One Fixed Annuity Type Over Another

Here’s where it gets interesting. Let’s say all other things being equal, you’re considering the two policies above. One five-year annuity plan that compounds at 5.50% — and one crediting 6.00% simple interest each year.

If you take no withdrawals, the compounding policy wins by approximately $700. Case closed.

But when regular withdrawals are taken, the compounding magic is eliminated. Let’s say you purchased the 5.50% policy and withdrew your interest regularly on a monthly or yearly basis. You would only receive $5,500 a year for a total of $27,500 after five years.

Woah, that’s a whopping $2,500 less than the $30,000 you’d get from the simple interest annuity! That’s why it’s essential to have an idea about your interest withdrawals before investing.

Who Offers Simple Interest Annuity Policies?

Currently, there are only a few companies offering simple interest MYGA (multi-year guaranteed annuity) accounts. Ibexis, Sentinel Life, and Atlantic Coast Life are three prominent players in this market. The latter two also offer compounding annuity policies as well.

Perhaps more will come along, but the three companies above are known for competitive rates. There are other important features to consider when investing in an annuity like AM Best rating, liquidity features, surrender charges, etc., That’s why it’s wise to talk with an expert before investing.

Working With An Annuity Broker

Generally, if you’re unsure about withdrawals, compounding policies are best. But you can see from the case study above that running the numbers is important. That’s where brokers add value. We can discuss the nuances of all types of policies so you are maximizing your gains and growth.

At Hyers & Associates, our independence allows us to work with all of the most competitive annuity providers available. We can help you compare your best annuity options. And you get our assistance at no cost. Contact us today!

The best indexed annuity policies offer the highest participation rates. Higher rates give you the opportunity for larger gains when the index you’ve chosen performs well.

Not all indexes are created equal, however. There are several nuances that will affect your total returns. This post discusses what to look for regarding annuity participation rates.

What Is An Annuity Participation Rate?

In a nutshell, it’s the percentage the insurance company uses to calculate your overall gain in any chosen index. It is declared yearly by the insurer and usually applies to a 12 month term.

For example, if your declared participation rate is 80% and your chosen index increases by 10% for the 12-month term, then you receive an 8% interest credit for that year. In other words, 80% of 10 equals 8%. That gain is then locked in, the 8% interest rate credited to your account, and it resets for the next year.

Can Participation Rates Change Or Be Capped?

Yes, participation rates can move up or down and generally reflect the overall interest rate environment. When interest rates are up, you can lock in higher participation rates with most indexed annuities. And yes, they can change year over year as overall rates fluctuate.

Insurance companies can cap your growth as well, but that is rare. If in the example above, there was a 7% cap, then the annuity would credit 7% instead of 8%. It’s best to find a policy with the highest participation rates and no earnings cap.

Why Are Some Rates Above 100%?

The S&P 500 is most commonly tracked with indexed annuities. You might also see the Dow Jones, NASDAQ, or Russell 2000 offered as options as well.

All indexed annuities offer several subaccounts. Many track well know indexes, while others track funds and/or commodity prices. There are others using proprietary indexes managed by large investment firms like Blackrock, JP Morgan Chase, and Credit Suisse among others. Some track gold while others will credit interest when the market goes down.

It’s advantageous to invest in an indexed annuity with several different subaccounts and a strong fixed account. In many cases, proprietary indexes will outperform standard ones simply because of the higher participation rates offered.

In fact, many proprietary indexes offer participation rates well above 100%. If your participation rate was 150% and the 12 month gain was 8%, you would be credited 12% for the year. Put another way, 8% multiplied by 150% participation rates equals a 12% gain for the year. These are the kinds of gains you’re looking for with indexed annuities.

A Small Example Of Comeptetitive Participation Rates

Please know that there are hundreds of indexed annuities offering all kinds of indexing options. They change often and increase or decrease based on fluctuating interest rates. The chart above lists some of the most popular and competitive rates at present.

Can I Buy Up? How Long Are The Terms?

There are also indexing accounts that offer higher participation rates for a fee. A no-cost account might have a 75% participation rate while one with an annual 1% charge might offer a 12% rate. When the economy is doing well, it can be advantageous to buy up and take advantage of the highest participation rates for that term.

It’s also worth noting that some policies offer subaccounts that do not credit interest for 24-36 months. (Examples are in the chart above.)

Longer-duration options typically offer the highest participation percentages. For example, a 12 month term might have a participation rate of 100% while a 24 month term could offer a 250% rate.

There are pros and cons to both shorter and longer terms. As it’s hard to time the market, many of our clients might put a portion of their dollars in each account in order to lock in more consistent gains.

Is Now A Good Time To Invest In An Indexed Annuity?

The best time to purchase a fixed income annuity is when rates are high. The second part of the equation is to lock in these higher rates while overall markets are down. This gives you better opportunities for future growth

Most indexed annuity policies are 5-10 years in length with subaccounts that could be 12-36 months within that 5-10 year term. There are several offering premium bonuses as well. Others might also offer lifetime income payments, leveraged long term care payouts, and/or a death benefit that’s guaranteed to grow each year.

We can help you compare your best options depending on your investment goals and needs.

There’s a lot of buzz around annuity accounts now and for good reason. Fixed annuities are some of the safest and most secure investments available.

In a rising interest rate environment, these accounts protect and preserve wealth while providing guaranteed returns. They are also insured.

With so much interest, you’ll want to understand how these policies work. In this post, we explain the most common annuity terms and how they affect your invested dollars.

Owners, Annuitants and Beneficiaries Explained

Annuity policies begin with three main components. There is an owner, annuitant and a beneficiary.

Owner(s):  All annuities have owners. There can be single or joint ownership. Often, we see spouses as joint owners. Additionally, we see entities as owners as well. An annuity can be owned by a corporation, trust, LLC, LLP or one of several other entities. (On a side note, these policies can also be used for IRA, 403b, 457 and other retirement accounts.)

Annuitant(s):  An annuitant is the person the annuity is based on. Think of it as the person who’s insured – it’s based on his or her life. There can be joint annuitants (spouses), but they must be natural living people. Annuitants cannot be an entity like a corporation or a trust. In most cases the annuitant and the owner are the same person when corporate annuity owners are not used.

(The IRS has different taxation rules on some annuities based on your age, so it’s wise to consult a tax expert when investing.)

Beneficiaries:  These are the people who inherit the account when the annuitant passes away. Like the owners, they can also be natural persons or entities. Some owners name their family members as beneficiaries while others use a trust, corporation or charity.

Consumers often create their accounts so their spouse has the option of continuing the annuity if the joint owner/annuitant passes prematurely. Policies allow for a lot of flexibility at onset.

Annuity Premiums And Bonus Accounts

The annuity premium is your initial investment into your account. Most contracts only accept one single premium, but others will accept funds for several years. Fixed, deferred income and immediate annuities are usually single premium accounts. Variable and indexed accounts usually accept additional deposits after onset.

Many contracts offer an annuity premium bonus. This incentive is usually associated with longer duration policies – say ten years. Some contracts will provide a bonus on your deposits for several years.

Terms, Account Value, Surrender Value and Death Benefit

The vast majority of annuities are offered for a set number of years. Often called the term, this period of time is established at purchase. It’s common to see fixed annuity accounts with two-, three- or five-year terms.

After the term has ended, the funds are free & clear of surrender charges. Some immediate annuity accounts have no defined term and simply provide income for the life of the owners.

The term of the annuity if usually called the surrender period. During this window, the owner will usually have access to their principal and interest, but not the entire principal. If the annuity is surrendered before the term is up, the owner will have to pay a surrender penalty. This amount is a percentage of the total account value and called the cash surrender value. It usually decreases each year.

Taking this a step further, your full account value is what your total investment is worth. However, it’s only available once your surrender period has ended (say five years, for example). Your full account value may also be available at death, when annuitized, or if you have certain health conditions. Otherwise, only the surrender value is available if you request all proceeds before your term is up.

Free Look Provisions And Contract Liquidity Definitions

Rules vary by state, but most annuity accounts allow the owner to inspect their contract for 30 days before taking possession.

This so-called free look period gives investors time to make certain the account best suits their needs.

After the free look window has ended, your annuity policy is considered an in-force contract.

The Contract Date (when the policy was issued by the insurance company) becomes effective and your surrender period has begun.

Account Liquidity, Terminal Illness And Chronic Condition Waivers

During the surrender period, most annuities offer several ways to access your funds without penalty. Oftentimes earned interest and a percentage of the principal are available in the first or second year of your policy term.

Other contracts will provide full or partial access to your account value should you be diagnosed with a chronic health condition or terminal illness. This is designed for those who might need large portions of their principal for long term care purposes.

Maturity Dates & Annuitization: Required To Annuitize?

There are common misunderstandings on how most annuities work. A couple of important definitions need to be addressed here.

The first term is:  Annuitization. This is simply a guaranteed payment stream of principal and interest. There are several ways to set up these guaranteed payment streams, but most owners never take this option.

Your insurance company will not force you to annuitize your policy at the end of it’s term, however.  You have the option to surrender your annuity and withdraw the entire account value. Alternatively, you can rollover, transfer or perform a 1035 tax-free exchange for a new annuity with terms/rates that meet your goals. It’s simply a choice.

Explaining Annuity Maturity Dates

If you’ve ever owned an annuity – or viewed a contract – you’ll notice it has a Maturity Date. Sometimes called an Annuity Date, this date is far off into the future and long past your surrender period.

This date is when the insurance company states your annuity payments can begin, if desired. It usually coincides with the annuitant’s 95th birthday. Are payments required? NO. Do you have to keep your policy that long? Also, NO.

Most annuity owners transfer their account or set up a new contract long before their maturity date. And if they have not, the insurance company will not force payments through annuitization. Instead, they allow you to change the maturity date and keep your annuity as is.

Guarantee Period & Minimum Guaranteed Rates

Most fixed annuity accounts have a Guarantee Period. This is simply the term that a certain interest rate is guaranteed. For instance, a MYGA (Multi-Year Guaranteed Annuity) might promise 4.00% for five years on your deposit. After that five-year term, the contract then matures.

Once mature, the annuity could have minimum guaranteed rate of 1%. At that time, it makes sense to look for a new annuity (or other investment) if the renewal rate is not competitive.

And almost all annuities have A Minimum Guaranteed Rate. This feature provides protection as it guarantees growth over the course of the annuity term. It’s only applied at the end of the term.

If, for example, your indexed annuity did not perform well over its seven-year term, the policy might guarantee 1% growth for each of the seven years. Again, this is only applied retroactively at the end of your chose term.

If the annuity is worth more than the Minimum Guaranteed Value at maturity, then that’s your cash value. In other words, it does not apply each year, but only when comparing the final values of the contract at the end of your chosen term.

Understanding Market Value Adjustments

Most fixed and indexed annuity accounts have a Market Value Adjustment (MVA) clause. It rarely comes into play, but it’s worth noting — especially in a rising interest rate environment.

Annuities are primarily constructed of bonds. This includes government treasuries, corporate debt offerings and some mortgage-backed securities. When rates go up, bond values go down. Conversely, when rates go down, bond prices go up.

Insurance companies build in MVAs to protect themselves and policyholders in the event there are mass liquidations in a rising rate environment. In practice, this means your annuity could be worth more or less based on interest rate fluctuations. (The MVA number is always available and usually on your annual statement.)

However, this repricing does not affect annuity values at maturity, death, or when normal distributions occur. It only affects any amount withdrawn during the surrender period above what is allowed for in the contract. In other words, it rarely comes into play unless it benefits the owner.

Contact Us For More Annuity Information

Hyers and Associates is an independent brokerage specializing in annuities for over 25 years. If you’d like to learn more about any of the definitions above, contact us today.

We’ll be happy to walk you through all of your best options when it comes to annuity investments.

Timing any market is difficult and the fixed interest rate market is no different. Only the most experienced (and perhaps luckiest) get it exactly right.

For the rest of us, we may not want to do all of our buying at once. It’s difficult to find the highs and lows when buying annuities.

For the purpose of this article, we’re going to discuss best practices for purchasing deferred income, indexed, and fixed annuities.

We are an annuity wholesaler brokerage specializing in fixed investments; we don’t offer variable accounts. There are certain annuity buying strategies we use for our clients depending on their needs and time horizons.

Our goal is to help our clients achieve maximum growth and income. Whether you’re looking for a market low and wish to acquire an indexed product – or want to take advantage of rising rates using fixed annuities – we can help.

Use A Fixed Annuity Laddering Strategy

In today’s interest rate environment, many of our clients are interested in fixed annuity policies. Also known as MYGAs (Multi-Year Guaranteed Annuity) accounts, these products most closely resemble bank CDs.

When rates are increasing, it’s hard to know when to buy. That’s why it can be wise to use a laddering strategy. This is a strategy where you buy annuities at different times, for different terms or both.

Laddering allows for flexibility. Using this process, funds mature and become liquid again every year or so. This allows for new investments when rates are increasing. It also allows for liquidity should you need access to the principal. And owning more than one policy gives you a blended rate that smooths out yields. It also diversifies your holdings.

You may want to use shorter term annuities until rates go up. Then you can invest larger amounts for longer terms and take advantage of higher yielding cycles.

We recommend keeping an eye on treasury rates. They tell us more about the direction of fixed annuity rates than bank or corporate bond yields. All that being said, fixed rates look to have hit a peak very recently here in March 2023. Banks are failing and annuity rates are high. I would not hesitate to lock in these historically high fixed annuity rates right now.

Deferred Income For Future Withdrawals

There may be no better product for creating guaranteed future income streams than deferred income annuities. The idea here is you invest a lump sum now, defer it for a period of years, then take systematic income payments in the future.

DIAs are known for their flexibility. You can defer income for a few months – or many years. And you don’t have to choose your income start date at the beginning. Most insurance companies allow owners to postpone (or accelerate) their income payments after purchase.

Typically, it’s best to lock-in a DIA when rates are high – or roll-up terms are in your favor. If rates are very low, you may want to invest in a traditional annuity, then buy your income product later. When they are high, then locking-in a competitive rate allows your annuity income to compound more quickly.

It’s also worth pointing out that many DIA policies allow for increasing income streams once your payments have begun.

When Is The Best Time To Buy An Indexed Annuity?

This is a product you want to time on two fronts if possible. First know that indexed annuities are built off of fixed account portfolios.

This means they offer the best potential for returns when fixed rates are higher. You’ll find more favorable spreads, caps and participation rates during higher rate cycles.

In conjunction with higher rates, you want to buy an indexed policy when markets are lower. This allows for more growth opportunity in the S&P 500, for example. So you need both working at the same time for maximum gains.

Both environments don’t always line up, but you will see them toward the end of a bear market. This is when the Federal Reserve usually starts to lower interest rates. You may also find good opportunities during random market sell-offs that don’t align with bad economic times.

Purchasing Annuities When You Want Safety

Factoring in the scenarios above, the best time to buy an annuity is also when you want safety and security. We have a lot of clients that simply want to protect a portion of their investment portfolios from downside risk.

They also want a reasonable rate of return on their money. It’s no secret that fixed annuities provide guarantees and competitive returns. They are some of the safest and most reliable accounts available. They provide stress-free places to park the money you don’t want exposed to stock and bond market fluctuations.

Contact Us To Discuss Your Investment Goals

Hyers and Associates is an independent insurance agency specializing in annuity policies. We can help you compare and contrast your best options.

Contact us today to learn more about our best annuity strategies for growth and income.

Purchasing an annuity is a smart way to save money.

It’s also a great way to set up a guaranteed stream of income in retirement. You will create reliable returns and give yourself peace of mind as a part of your investment portfolio.

Ultimately, the question arises – how do I get paid from my annuity? Below we explain how to create, grow and profit from these dependable accounts.

What Is An Income Annuity Policy?

Also known as immediate annuities, these products allow for guaranteed payments after one month. In other cases, the income might begin after several months or years. It’s up to the owner as to when they want to begin their income stream. The longer they wait, the higher the income.

Payments can be received monthly, quarterly, semiannually or annually.  This type of annuity is common among those who are nearing retirement or planning for income at a later date. Most policies offer flexible payment streams and/or increasing income amounts.

How Does A Lifetime Annuity Account Work?

Lifetime annuity accounts are a variation of immediate accounts. Instead of making payments to the owner(s) for a fixed number of years, they pay for life. Plans can be established to cover one or two insureds and payments can begin at any age.

Lifetime payments will usually be lower than known, fixed-year policies.  This protects against longevity risk and assures contract owner(s) will not outlive their retirement savings. It is best to set up a lifetime annuity when interest rates are high.

What Is A Fixed-Period Annuity?

The best example of a fixed-period annuity would be a lottery payment. Those who are lucky enough to win the lottery and patient enough to take payments establish these types of policies. Lotto winnings usually pay-out over 26 years, for example.

Other accounts simply make payments for a set number of years. In most cases, payment cycles range from 5-30 years. The owner’s age does not affect the amount of the payments. If the owner passes before all payments have been made, the balance goes to his or her named beneficiaries.

It’s worth noting that some lifetime annuities also contain period certain terms. This guarantees all principal and interest is distributed to either the insured or their beneficiaries. This is a safeguard most lifetime annuity owners choose to assure maximum asset retention.

What Is A Deferred Annuity Account?

This type of contract allows owners to defer income for several years – even for life. This is done to maximize growth of the principal while deferring taxes until distributions begin.

Investors might use a deferred annuity as a way to save for a later date. When needed, interest and/or part of the principal can be withdrawn for living expenses or large purchases. Withdrawals are always available, but only taken sporadically and as needed. View the best fixed annuity rates for growth and deferral.

With deferred annuities, our clients usually take advantage of 1035 tax-free exchange rules to move from one policy to another. This allows them to lock-in the highest annuity interest rates once their existing account has matured.

What If I Want A Lump Sum Payment From My Policy?

A lump-sum option is usually available as well. The tax burden can increase with this type of withdrawal. Most often we see this method upon inheritance.

Owners can withdraw all of their principal and gains while living as well. This might be done to invest elsewhere or to pay for things like properties, vacations, tuition or healthcare expenses.

The fact is many annuity owners never withdraw their full principal or interest gains entirely. Those funds are not lost, however. The insurance company does not keep them. If the owner does not use them, then they go to the named beneficiaries — their families, for example.

Contact Us To Discuss Your Best Income Options

The bottom line is there are several ways to get paid from your annuity account. You can take systematic regular withdrawals – or sporadic payments as needed. And you can always defer your gains now to maximize future payments later.

It’s important to work with a independent brokerage specializing in annuities like ours. We’ll help you compare illustrations and policy provisions to find the most suitable accounts.