Annuities84 percent of Americans claim that receiving a monthly paycheck during retirement is important to them; yet only 14 percent of Americans have purchased an annuity.
(TIAA-CREF "Lifetime Income Study 2014") |
Annuities can Help you Meet your Financial Goals
It is estimated that more than 10,000 Baby Boomers will retire each day between now and 2029. Sadly, a significant portion of Baby Boomers consider themselves unprepared for life after work. According to the Employee Benefit Research Institute the percentage of workers confident about having enough money for a comfortable retirement were at record lows between 2009 and 2013 and although 2014 ushered in some optimism, only 18% of workers feel they are confident that they will have enough money for a comfortable retirement.
In fact, 78% of workers have less than $100,000 saved to last throughout their retirement years.(1) With the uncertainty of government benefits like Social Security and Medicare, as well as the increasing longevity we face, boomers and members of the generations that follow will all be focused on one common goal: establishing a significant source of income that is guaranteed for life.
Clients are often seeking guidance on an array of financial objectives, including protection against investment losses, how to guarantee sufficient income to meet rising health care costs, and ways to earn higher potential returns with guaranteed income while addressing tax and estate planning concerns.
1 2014 Retirement Confidence Survey. Employee Benefit Research Institute and Greenwald & Associates, www.ebri.org.
Clients are often seeking guidance on an array of financial objectives, including protection against investment losses, how to guarantee sufficient income to meet rising health care costs, and ways to earn higher potential returns with guaranteed income while addressing tax and estate planning concerns.
1 2014 Retirement Confidence Survey. Employee Benefit Research Institute and Greenwald & Associates, www.ebri.org.
Annuity Features and Benefits
Annuities are insurance products filed with and approved by state insurance regulators. Fixed annuities have NO market risk, and owners of fixed annuities do not participate directly in any financial market. Whether interest is declared in advance or determined by the performance of a market index, that interest, along with the premium paid, is guaranteed NEVER to go down because the markets do.
Insurance Protection: Annuities do not have FDIC protection. Annuities do have safety measures put in place by the state to ensure insurance companies have reserve pools in place. Insurance companies also display their financial strength by obtaining a rating from objective rating firms such as Standard & Poor’s, Moody’s, A.M. Best or Duff & Phelps. A solid financial backbone is usually accompanied with a solid rating.
Interest Rates: There are several variations of annuities. A fixed annuity provides a guaranteed minimum return by the issuing insurance company. A common guarantee on a fixed annuity may range between 2% and 6%. An indexed annuity credits interest based on the performance of a particular index such as the S&P 500.
Tax Treatment: All annuities grow tax-deferred; however, special action must be taken with qualified and non-qualified accounts. Taxes are only to be paid when money is withdrawn. The taxes that are being deferred remain in the account to earn you more money, rather than being paid to state and federal agencies every year.
Liquidity: Annuities do have provisions that allow money to be withdrawn. Generally, 10% of the account value is available for withdrawal, and many contracts allow earned interest to be withdrawn on a monthly basis. Additionally, there are contract provisions that allow access to all your funds in the event you are hospitalized, undergoing a life-threatening illness, subjected to a permanent or extended stay in a nursing home, or experiencing another major calamity that affect you economically. Annuities can also be structured to pay-out for the life of the owner for a fixed term such as five or ten years; this spreads out your tax burden as well as provides enhanced income security. Annuities are long-term savings vehicles and may require a 10% federal tax penalty for withdrawal of funds that exceeds those discussed above prior to age 59 ½.
Insurance Protection: Annuities do not have FDIC protection. Annuities do have safety measures put in place by the state to ensure insurance companies have reserve pools in place. Insurance companies also display their financial strength by obtaining a rating from objective rating firms such as Standard & Poor’s, Moody’s, A.M. Best or Duff & Phelps. A solid financial backbone is usually accompanied with a solid rating.
Interest Rates: There are several variations of annuities. A fixed annuity provides a guaranteed minimum return by the issuing insurance company. A common guarantee on a fixed annuity may range between 2% and 6%. An indexed annuity credits interest based on the performance of a particular index such as the S&P 500.
Tax Treatment: All annuities grow tax-deferred; however, special action must be taken with qualified and non-qualified accounts. Taxes are only to be paid when money is withdrawn. The taxes that are being deferred remain in the account to earn you more money, rather than being paid to state and federal agencies every year.
Liquidity: Annuities do have provisions that allow money to be withdrawn. Generally, 10% of the account value is available for withdrawal, and many contracts allow earned interest to be withdrawn on a monthly basis. Additionally, there are contract provisions that allow access to all your funds in the event you are hospitalized, undergoing a life-threatening illness, subjected to a permanent or extended stay in a nursing home, or experiencing another major calamity that affect you economically. Annuities can also be structured to pay-out for the life of the owner for a fixed term such as five or ten years; this spreads out your tax burden as well as provides enhanced income security. Annuities are long-term savings vehicles and may require a 10% federal tax penalty for withdrawal of funds that exceeds those discussed above prior to age 59 ½.
Misconceptions about Annuities
Annuity products have evolved significantly throughout the past decade. This has also contributed to an environment full of mixed messages regarding the pros and cons of annuities. Not every annuity is created equally and sifting through the maze of information on line can be frustrating. On thing for sure is that Americans have changed their view on Annuities over the last decade. According to the Insured Retirement Institute in 2013, more than 220 billion in retirement savings was transferred into annuities and the numbers for 2014 are expected to increase by 6.8%. So clearly there are investors that see a need for safe and secure investing that captures a portion of the market when it rises while protecting against the possibility of a market crash.
Have an article you’ve read with information you need help clarifying? Looking for specific information about a particular product? Not every annuity is right for every client. Enright can help clarify what may be confusing. Let’s work together to find out what makes sense in your unique financial situation and more about how annuities can positively impact your retirement future.
Have an article you’ve read with information you need help clarifying? Looking for specific information about a particular product? Not every annuity is right for every client. Enright can help clarify what may be confusing. Let’s work together to find out what makes sense in your unique financial situation and more about how annuities can positively impact your retirement future.
Contact us today (630) 358-9379 so that we can help you shop the market.
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