Annuities Investment Management Ponte Vedra FL, North FL, South GA
Why Buy Annuities?
A financial product that an individual can purchase that will provide a consistent guaranteed form of income in the future is called an annuity. Annuities are basically an financial insurance policy that you fund either with a lump sum or timed contributions. Even though described as an insurance contract, annuities are investments, and as with all investments, there is an element of risk involved. Unlike most investments though there is no downside risk. While anyone can purchase or own an annuity, they are often an ideal source of steady income for retirees.
Key Features
- Annuities can be structured to give investors what they need - fixed, immediate or deferred income beneficiary legcacy structures or simply a walk away safe investment platform.
- The first phase of an annuity is where the investor funds the product with either a lump-sum or periodic payments.
- Once the annuitization phase has been reached, the product can begin paying out to the annuitant for either a fixed period or for the annuitant's remaining lifetime. You may also walk away with all money earned after contract piriod has concluded.
- Annuities are financial products that offer a guaranteed income stream and a safe money investment.
Who Buys Annuities?
The time to invest in annuities is when you have a good income to expense ratio and are not cash poor, or when you have a lump sum windfall and trade it for future payments. For example, if you currently have a steady income and receive a cash inheritance, this would be a good time to purchase an annuity. Then, at some point in the future, you can draw a steady income from that inheritance. If, on the other hand, you find yourself the recipient of an inheritance and have some known expenses that will not be covered with your existing income flow, it is probably not wise to invest this cash windfall in an annuity, because once you make the investment, all the cash is no longer readily available without a penalty like a bank CD. Generally unlike a bank CD though you can withdraw 10% per year penalty free.
Types of Annuities
There are three main types of annuities: fixed, variable and fixed indexed. Each type has its own level of risk and opportunity for reward. Fixed annuities pay out a guaranteed amount. The downside of this is predictability. This will be a relatively modest annual return that is usually about double the bank CD rate. The higher the risk most often equates to a potentially higher reward or loss
Fixed Annuity
When you buy a contract with a life insurance company, you are basically funding a fixed annuity. The premiums you pay along the way either in a lump sum or periodic payments can be paid out in retirement. The amount you deposit into this account allows you to defer that income until a later time. These contracts have a guaranteed interest rate that you will earn on the money you have deposited in the annuity contract. You can purchase two different types of fixed annuities--immediate or deferred. An immediate fixed annuity is very comparable to a bank issued certificate of deposit (CD), as it pays a guaranteed return. However, rather than annual interest reporting through a 1099-INT tax form, the fixed annuity interest accrues inside the annuity and is not taxable until you withdraw it from the fund. Also like a CD, you choose an assigned term, such as a five-year fixed annuity. You will want to make sure that when you buy into an annuity that you will be able to leave the funds for the duration of the term because there is a pretty severe early withdrawal penalty. When purchasing an annuity, check to be sure you can make penalty free withdrawals; many fixed annuities allow an annual no-penalty 10 percent withdrawal. If you inherit money or receive a bonus, a fixed annuity may be a really terrific option for making the most of your available dollars.
Deferred Annuity
Deferred income or deferred fixed annuities allow you to receive a guaranteed amount of interest that accumulates within the annuity contract. There are no income taxes paid until you take a withdrawal. Althow required minimum disributions apply. You can purchase a deferred fixed annuity with either IRA money or non-IRA money. However, if purchasing a deferred fixed annuity with IRA funds, all tax rules that apply to IRAs will apply to all funds in the annuity including contribution limits, type of investment held and required minimum distributions. No such rules apply to deferred fixed annuities that were purchased with non-qualified money.
Variable Annuity
A potentially higher return can be achieved with a Variable Annuity. This higher return opportunity exists because is comes with a greater risk of loss. For example, you select from a list of mutual funds that are placed into your portfolio. The payments you receive in retirement depend on the amount of return your portfolio investments net.
Fixed Indexed Annuity
A fixed Indexed Annuity, also known as a Hybrid Annuity, falls somewhere in between a fixed-rate and a variable-rate annuity. The hybrid splits funds in the account between safer more conservative assets that generate a lower but guaranteed ROI and riskier more agressive assets that have the potential for higher ROI. These hybrid annuities typically have no fees and in certain markets, they may even outperform the riskier variable-rate annuity especially when you factor in the fees assessed in the variable-rate contracts. Additionally, many of these safe fixed indexed annuitys offer features such as penalty free withdrawals, terminal illness wavers, home health care or even assisted living care platforms. Be careful when investing as there are many fetures such as caps or ceilings that insurance companys will put on a FIA. Those fetures will limit your return on investment. I am a expert in navigating these different annuities and finding the ones that yield the very best returns.