Annuities

You are in the annuity information gathering mode with the goal of picking the best annuities for your financial future. Most people are curious about variable or fixed annuity rates. There are two fundamental annuities based on risk characteristics, namely fixed and variable, with two fundamental variations known as immediate and deferred… with numerous options for each category. Use this guide to chose the right one for your situation:

Fixed Annuities vs Variable Annuities

All annuities other than immediate annuities have a characteristic known as deferral. The purpose of deferral is twofold. First, it refers to money being left in a savings-growth stage over a period of time, also referred to as the accumulation stage. Second, deferral refers to the tax characteristics of deferral allowing money to grow tax-free until it is withdrawn for income. Thus, an immediate annuity is neither deferred for savings-growth nor tax deferral and is therefore not considered a deferred annuity. So, what is the distinction between variable deferred annuity and fixed deferred annuity? It is very simple. Fixed is when the insurance institution assumes the risk for your principal and accumulation while variable is when you assume the risk for the underlying investments, principal and accumulation.

• Deferred fixed annuities originated in the U.S. approximately 100 years ago.
• They can be acquired in periodic, systematic or lump sum payments.
• Deferral in fixed annuities allows the value of the annuity to increase.
• After deferral period, fixed annuity can produce more income.
• Deferred fixed annuities have the added advantage of tax deferral.
• They can be annuitized providing a lifetime of income.
• Deferred fixed annuities are opposite of immediate annuities since immediate annuities begin income soon after they are purchased in a lump sum.
• CD deferred fixed annuity refers to a type of annuity that has a multi-year interest guarantee. Only bank-issued CDs are FDIC insured

Immediate Annuities

Immediate annuities have been the main-stay for decades when it comes down to establishing a life-long pension style income for retirees. However, they have faced considerable competition in recent years from the popular new income riders on deferred annuities that provide a lifetime income guarantee without giving up one's lump-sum.

• Lump-sum contributions only
• Invested in mostly high quality A-AAA bonds
• No risk to client. Insurance company assumes all risk
• Guaranteed income
• Minimal growth
• 1% to 3% Internal rate of return
• 5- 10- 15- 20- 25- 30-year and lifetime terms
• Immediate annuities are the opposite of deferred annuities since immediate annuities begin income soon after they are purchased in a lump sum
• Predictable, simple
• Guaranteed retirement income
• No annual fees

Fixed Index Annuities

There are no perfect investments or retirement strategies that solve every contingency. It is more likely that a combination of investment strategies and financial vehicles will ultimately give you the diversified retirement plan that you are looking for. A Fixed index annuity offers several advantages that may suggest a foundational position in your retirement planning; however, they to are not without their disadvantages.

As with all investments, there are characteristics to be aware of and take into consideration. These characteristics for some individuals may be a true disadvantage, and for other individuals they may offer a needed advantage with no negative impact based on one’s retirement planning objectives.

Deferred Annuities

One of the early recorded uses of annuities in the United States was by the Presbyterian Church back in 1720. The purpose was to provide a secure retirement to aging ministers and their families, and was later expanded to assist widows and orphans. This was not the earliest form of annuity. For that, we have to go all the way back to the Roman Empire over two thousand years ago. Speculators in ancient Rome sold what was called Annua, which was an annual payout; thus Annua is the root word for what we term an annuity today. The annuity has proven to be one of the most reliable and oldest financial tools in use throughout the world. In 1912, Pennsylvania Company Insurance was among the first to begin offering annuities to the general public in the United States. Annuities have continued to grow in popularity and prove their value over and over as individuals, organizations and businesses look for secure ways to guarantee retirement income. Many famous and infamous people have made use of annuities in a beneficial way throughout history. Here are few of them you may recognize: Benjamin Franklin assisting the cities of Boston and Philadelphia; Babe Ruth avoiding losses during the great depression, OJ Simpson protecting his income from lawsuits and creditors. Ben Bernanke in 2006 disclosed that his major financial assets are two annuities. Many professional people such as sports figures, doctors and actors use annuities to secure their future income needs.

All deferred annuities enjoy tax deferral, with no income tax requirement until withdrawal. This is a definite advantage over many investments like CDs, mutual funds and securities-oriented investments when considering a long term retirement plan. A long term fixed annuity investment may outperform CDs, bonds and treasuries. Reinvesting money that would otherwise be paid out in tax over an extended period of years is always an advantage. In addition, deferred annuities have several benefits that are important for retirement planning.

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