Fixed Indexed Annuity (FIA)
Annuities have been around since the days of the Roman Empire. They have been used for centuries to provide a lifetime income to individuals retiring from various occupations. In the past, annuities have been fairly rigid in the way that they were structured. Once they were turned on, you received a fixed sum for the rest of your life… regardless of how long you may have lived. Today’s modern annuity maintains the concept of an income for life (you can never outlive the income) but adds to that flexibility in the way you can receive payments plus adds a guaranty component to ensure that you receive a minimum growth percentage in your account no matter what happens in the rest of the financial world. So here again, you participate in the upside of the market, while being protected from downside risk.
Both IULs and Annuities are exciting retirement savings options that we can look at for you. It just takes a few minutes to gather some needed information and then we see which options might be best for your ideal retirement program.
Annuities 101
If you are in a saving-money stage of life, annuities can help you:
- Meet your retirement income
- Manage and diversify your investment portfolio.
- Have different options.
- Benefit your heirs.
- Plan your estate.
If you are in a need-income stage of life, annuities can help you:
- Have a lifetime income.
- Protect against outliving your assets.
- Protect your assets from creditors.
- Diversify investment risk.
- Tax deferral on investment earnings.
How do I determine the Right Annuity for Me?
1. How do you want to pay into your contract?
When you give the issuing insurance company a lump sum, you buy a single-premium annuity. The issuing company may set minimum and maximum amounts they will allow. You may also buy a flexible-premium annuity. This annuity type enables you to determine the timing and amount of additional payments.
2. When do you want benefit payments or payouts to begin?
If you want income to start right away, you will need an immediate annuity. An immediate annuity is a type of contract which begins paying out within one annuity period – e.g., one month or one year, after it is purchased – and pays principal and earnings in equal payments over some time period.
For example, if you schedule your income payments to be paid monthly, the first payout will occur one month after your purchase. Retirees or soon-to-be retirees typically buy immediate annuities with money they have already accumulated for retirement. This contract is purchased with a single premium.
On the other hand, payouts from deferred annuities (a type of contract used to accumulate money over a number of years) usually begin many years after the insurance company issues the contract. You may wait to select your payout options later. When you need the funds, you may take your money either in a lump sum, through systematic withdrawals or by electing a payout option to annuitize – converting the deferred annuity you have accumulated into a stream of regular payments. Because deferred annuities are accumulation vehicles, individuals of all ages purchase them for personal retirement savings funds and for special tax-deferred programs such as IRAs, Keogh plans and tax-sheltered annuities. These contracts can be either a single- or flexible-premium type.
3. Options for your savings
Annuities are long-term investments to help you accumulate assets on a tax-deferred basis. When purchased to fund a tax-qualified plan, which already provides tax deferral, annuities provide other unique benefits such as options for guaranteed lifetime income you cannot outlive. Under fixed annuity contracts, the life insurance company pays an interest rate for a specific period at the time the annuity is purchased. At the end of each guaranteed period, the current rate (the interest rate currently paid on a fixed annuity contract for a specific period of time) is raised or lowered based on the company’s interest rate policy.
Fixed annuities transfer the market risk from the investor to the life insurance company.
A type of fixed annuity, called an indexed annuity, grows at an interest rate determined by a formula based on the rise or fall of a market index, such as the Standard & Poor’s 500. While indexed annuities may offer the opportunity for higher returns than traditional fixed annuities, they may not pay as much as an investment in equities, or equity mutual funds that invest in equities. However, they can offer protection against loss in the event of a market downturn, whereas a direct investment in equities such as through stock, or mutual funds includes risk of loss,
Whether you choose a fixed, indexed or other type of annuity contract depends on your own personal risk tolerance and the product features.
