Retirement Strategies

Imagine saving for the future knowing your principal is safe from market risk and your future income is predictable. Fixed annuities are financial vehicles structured much like a bank CD. Similar to a CD, fixed annuities offer a rate of return over time but many also include tax benefits geared specifically toward retirement savings. Once the initial deposit is made, a rate of return is guaranteed for a specific length of time backed by contract terms and the financial and claims-paying ability of the issuing insurance company.

Fixed annuities help keep your principal safe from market volatility, and some offer more liquidity than CDs. They typically offer a higher rate of return than bonds, CDs, or Treasurys. Fixed annuities can have three primary advantages: tax deferral, principal protection, and a guaranteed rate of return for a fixed period of time. They can offer conservative growth, typically 2-4%. Unlike many short-term options, the beneficiary of a fixed annuity receives the remaining value of the accumulation account while avoiding probate in the case of the annuity owner’s death. Depending on your age and maximum withdrawal amount, fixed annuities can allow you to withdraw your interest monthly or annually or remain compounding at a tax-deferred rate.

• Short Term (1 – 5 years)

A short-term fixed annuity is designed to protect your money from market volatility with a reasonable rate of return of approximately one to five years.

• Long Term (6 – 10 years)

Depending on the company and national interest rates, your rate on a long-term fixed annuity could be anywhere from 3-7%. Long-term fixed annuities have the same features as a short-term annuity; however, you are usually guaranteed a higher rate of return for a longer period of time without market risk to your principal.

Always keep in mind that allowing yourself to be fully engaged in the stock market can leave you at risk of losing everything. Is the reward of going up a little worth the risk of going down a lot? A fixed indexed annuity offers you an option.

Fixed indexed annuities are designed to help you receive upside potential from the market indexes without downside market risk. Any growth is credited by the performance of the chosen index (S&P 500, the Nasdaq 100, the Shiller Index, the Barclays Dynamic, etc.). Many insurance companies that offer fixed indexed annuities have their own chosen indexes for growth within the FIA product.

Although index annuity credited interest is ‘linked’ to the performance of the index, it is important to note that you are not directly invested in the market. Simply put, the insurance company will look at the overall returns of the index and credit your contract based on its performance (minus any caps, fees, or spreads). An indexed annuity captures a portion of the upside while protecting you from the downside.

Many indexed annuities feature a minimum rate of return regardless of index performance. This rate varies from contract to contract but is generally from 1-3%. The minimum rate guarantees that whenever the index decreases in value, your contract is still able to grow.

While fixed indexed annuities are tax-deferred, their options make them a preferred protection vehicle, perfect for those in retirement. Your contract can accumulate value tax-free until income is cashed out or the end of your contract.

The purpose of an income annuity is to help protect against the fear of outliving your money. If you are in or near retirement, you probably have some money set aside in the form of savings, CDs, mutual funds, 401(k) plans, or an IRA. An income annuity allows you to convert a portion of your retirement funds into a stream of guaranteed lifetime income payments using a single premium or through flexible payments over time. In return, you receive a check monthly, quarterly, semi-annually, or annually. This income is guaranteed by contract for the rest of your life, starting whenever you choose.

An income annuity is not subject to stock market performance. Regardless of the ups and downs of the financial markets, you can be confident that your income annuity is locked in and guaranteed based on the financial strength and claims-paying ability of the issuing insurance company. Some income annuities offer riders for an additional cost that will guarantee your income value to grow anywhere from 4-10% each year until you decide to start withdrawing income. You will always know what your income value will be. With this product, you set aside a part of your assets to help cover future living expenses. The income checks can help make it easier for you to stay on budget and to ensure your basic needs are covered.

Immediate annuities are very straightforward. An immediate annuity is a way to convert at least a portion of your retirement funds into a steady income that can last as long as you do. Immediate annuities start paying out within 30 days of the lump sum payment, so they are frequently used by people already in retirement. A deferred annuity can also be converted into an immediate annuity.

The prime advantage of an immediate annuity is to prevent retirees from outliving their nest egg. You are guaranteed an income stream for your entire life (or a specific number of years, if you choose). Knowing you can count on a guaranteed income stream from an insurance company can be a benefit for retirees. Additionally, often the payments can often be higher than if you were putting your money into a safer strategy on your own.

You have worked hard to build your retirement savings and, as a result, may have additional assets you want to leave behind for your loved ones. Most people are familiar with how annuities can add income to fill their specific needs, but setting up guaranteed payments for heirs and beneficiaries is becoming more popular with those who want to control how their legacy is distributed. Just like with any other annuity, a legacy-geared annuity is principal-protected and guaranteed against market loss by contractual terms spelled out by the insurance company. Typically, a cost-of-living adjustment can be added to the contract so the payments increase annually for the life of the policy, helping protect against inflation.

Legacy-geared annuity features:

• A lifetime income stream for both you and your beneficiary (through an optional rider)
• Tax liability spread out over time
• Avoidance of many estate or probate issues
• Preventing your beneficiaries from spending too much by releasing funds slowly