What is An Ordinary Annuity?

Per Wikipedia “An annuity is a series of equal payments at regular intervals. Examples of annuities are regular deposits to a savings account, monthly home mortgage payments, monthly insurance payments and pension payments.” This is partially true. On this site you will find reasons to invest in fixed and indexed annuities, fixed annuity rates comparison what are the basics you need to know about (annuities for dummies) and what are the fees in an annuity.

Why Invest in An Annuity?

Life insurance companies first developed annuities to provide income to individuals during their retirement years. An annuity is a contract between you, the purchaser/owner and the insurance company.  As a result, you pay money to an annuity issuer/carrier and consequently get some rate of return on your money.

Most noteworthy, at the end of the accumulation phase, you can choose to withdraw money. You may also have the insurance carrier pay out the principal and earnings back to you. This can also go to a named beneficiary over a period of time. You may choose to receive those payments immediately or defer them to some date in the future.

Your Retirement Plan

Annuity is similar to a qualified retirement plan in several ways. Tax deferment applied to your earnings continue until you begin to receive payments back from the annuity issuer. Over a period of time, your investment in an annuity can grow substantially larger than a comparable taxable investment.

A tax penalty of 10% applies if you begin withdrawals from an annuity before age 59½. Unlike a qualified retirement plan, however, contributions to an annuity are not tax deductible and taxes are only paid on the earnings when distributed.

The defining characteristic of any annuity is the option to receive the payments as guaranteed income for the rest of your life.  Even if the account value goes to zero, the insurance carrier will still pay what was agreed upon.

What Age Ranges Can I Buy An Annuity?

Usually you can buy an annuity from ages 18-90, but remember this is an insurance product so you can not pull your money before age 59 ½.

Early withdrawal results in a 10% penalty on just the gains you made. If you buy an annuity in your 30’s you can “roll them” or 1035 them into another annuity and defer taxes & best annuity rates. Most income riders can only be purchased at age 50 and older. Most companies will not allow you to buy an annuity after the age of 85. There are a few carriers that will issue up to age 90.

Where Are Annuities Bought?

Financial company or insurance outlets sell fixed annuities. Some pay in a lump sum from their savings (single premium), while others pay in small portions until the agreed amount is acquired. This is called a flexible premium.

The investment earns a guaranteed fixed rate through the accumulation stage. As the money is paid, the remaining money in the account will continue to gather and earn interest based on the contract. This interest can be derived from a fixed rate (Fixed Annuity) or based off an index, most commonly the S&P 500 or through mutual funds (sub accounts inside of a variable annuity).

Money grows during the accumulation phase. This is an advantage that fixed annuities have over other forms of investment. The penalties, taxes, and fees are used to discourage premature withdrawal in order for it accumulate with time. Special occasions, however, may require you to request the funds beforehand.

Some people compare fixed annuities to mutual funds, but there are no similarities. Index and Fixed annuities are close to C.D.’s and bonds are not like mutual funds or equities.

When is an annuity appropriate?

It is important to understand that annuities can be an excellent tool if used properly by you and your adviser. Annuity contributions are not tax deductible. That’s why most experts advise funding other retirement plans first. If you have already contributed the maximum allowable amount to other available retirement plans, however, an annuity can be an excellent choice. There is no investment limit to your annuity. The funds grow tax deferred until you begin taking distributions.

Long Term Investment

Annuities act as a long-term investment vehicle. In most cases, you’ll pay a penalty for early withdrawals. If you take a lump sum distribution of your annuity funds within the first few years after purchasing your annuity, you may be subject to surrender charges imposed by the issuer. An annuity is worth considering if you are certain that you won’t need the invested money until after age 59 1/2. If your needs are more short term, you should explore other options. Most contracts are 5-10 years, we do not recommend purchasing an annuity that is longer than 10 years.

These are just a few of the important questions to consider as you evaluate what is necessary for a happy and prosperous financial future. These questions may seem a bit overwhelming, but remember you don’t have to figure out all the answers alone.

Do You Have Questions About Retirement?

As you approach retirement planning, you may have the following questions:

1. Are you on the right course to achieve your future financial goals?
2. What are your dreams for retirement?
3. Have you sufficiently planned your spending needs and wants?
4. Do you have a professional (financial adviser) to offer support and guidance?

Advantages of annuity ownership

Tax-Deferred Growth. One of the greatest benefits of a fixed or fixed-indexed annuity is that the interest credited to your annuity is completely untouched by current federal income tax during the accumulation period. Interest compounds and the account grows at a faster rate as a result of tax deferral. Compound interest is calculated not only on the initial principal, but also on the accumulated interest of prior periods.

You can continue the tax deferment by “rolling” the account value of the annuity to another annuity. This is known as a is 1035 exchange. If you have questions on this, please contact us by filling out the form and one of our financial advisers will contact you about your NEEDS and not a product offering.

Protection for your family

An annuity can serve as an effective estate planning tool since it distributes the remaining contract value to your beneficiaries without going through probate. Some of our annuities also have some additional features that help you protect your assets.

The Parties Involved In An Annuity Contract

There are four parties to an annuity contract.

• The annuity issuer (the insurance carrier)
• Owner (The annuitant)
• Beneficiary.

The annuity issuer is the company (e.g., an insurance company) that issues the annuity. The owner is the individual or other entity who buys the annuity from the annuity issuer. The buyer makes the contributions to the annuity (owner can be a non-profit company, trust, or individual). ‘Annuitant’ refers to the individual whose life will be used as the measuring life for determining the timing and amount of distribution benefits that will be paid. The owner and the annuitant are usually the same person, but not necessarily. Finally, best annuity rates & the beneficiary is the person who receives a death benefit from the annuity at the death of the annuitant.

What are the charges for an annuity?

Most annuities do not charge up-front sales charges, but have charges if you withdraw money before the end of a stated period. Fixed annuity rates comparison annuities do not have administrative fees. Although interest crediting rates take into account expenses related to the product. Variable annuities may involve ongoing maintenance and administrative fees to provide guaranteed death benefits and cover expenses related to the product. When purchasing a variable annuity, information regarding contract charges in the contract’s prospectus is available.

What Are Fixed and Index Annuities and How Do They Work? – Tennessee Annuity Rates

Per Wikipedia ” An annuity is a series of equal payments at regular intervals. Examples of annuities are regular deposits to a savings account, monthly home mortgage payments, monthly insurance payments and pension payments.” This is partially true.

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What To Look For In A Fixed Annuity When It Comes To Ratings

How do I know the insurance company is creditable?

There are about 50 insurance carriers, but ONLY 12 investable. If an AM Best Rating is below an A-, it would be advisable to disregard any investment or long term relationship with them. 

Here are two rating companies to research when you are trying to find the best annuities to purchase.

A.M. Best

Founded in 1899, A.M. Best Company is a full-service credit rating organization dedicated to serving the insurance industry.  Contract owners refer to Best’s ratings and analysis as a means of assessing the financial strength and creditworthiness of risk-bearing entities and investment vehicles. 

ONLY WORK WITH CARRIERS THAT ARE A- or HIGHER

What is the Comdex Ranking of your insurance company?

AM Best, Fitch, Moody’s and S&P. The Comdex is not in reality a rating but rather a ranking based on the average of all the different ratings these different organizations give an insurance company. The Comdex rating is on a number scale of 1 to 100with a higher number being the better ranking. A good rule of thumb is 80% or higher.

How Do I Know If An Insurance Company Is Creditable? – Tennessee Annuity Rates

There are about 50 insurance carriers, but ONLY 12 investable. If an AM Best Rating is below an A-, it would be advisable to disregard any investment or long term relationship with them. Here are two rating companies to research when you are trying to find the best annuities to purchase.

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 Why Invest in Annuities?

Exclusion ratios are tax-exempt portions of your annuity return. For example, each annuity payment you receive can be split into two distinct parts. The annuity investment capital is one portion. The other portion is an additional amount that is taxed at the current income rate. This portion is interest that you’ve earned. Consequently, it’s taxed as regular income would be. The capital portion of the return is not taxed. The return on capital, or the additional balance after the principal capital is subtracted, is taxed. This is because it’s considered part of the annuitant’s gross income.

What Is The Exclusion Ratios?

The exclusion ratio is a calculable ratio used to identify the portion payout that is excluded from taxable income. The exclusion ratio is the amount that the annuitant invested into the annuity divided by the return expected from the investment. Apply this exclusion ratio to each annuity payout. Now, identify the percentage of each return that is tax-free. Do not consider it part of gross income.

For example, say that an annuitant invests $158,000 into an annuity. The potential income stream based on life expectancy could be $264,000. The exclusion ratio would be $158,000 / $264,000, or 60%. The tax-exempt portion of a $1,250 per month payment would then be $750. The remaining $500 balance would be taxable as additional gross income Annuitization.

Take the below as a more realistic representation of the exclusion ratio:

 What Is The Benefit of The Exclusion Ratio For The Annuitant?

You don’t need to add the tax-exempt return to your W2 or tax return during tax season. It’s completely exempt from gross income taxation.

Annuities calculate the payout based on the life expectancy of the annuitant. Consequently, requirements do apply for these types of investments. Use IRS tables to determine the total expected value. Different tax exempt rules apply to those annuitants who have retirement plans under the IRS public school employment laws which may allow the annuitant to have a greater amount of tax exemptions from an present value of the annuity.

Why Invest in Annuities? Because The Exclusion Ratios Means Tax-Exempt ROI – Tennessee Annuity Rates

Exclusion ratios are tax-exempt portions of your annuity return. For example, each annuity payment you receive can be split into two distinct parts. The annuity investment capital is one portion. The other portion is an additional amount that is taxed at the current income rate. This portion is interest that you’ve earned.

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 It may send your mind into an infinite loop to imagine using money to buy money products, but that’s just how the financial world works. And Americans did just that! In just the third quarter of 2016, USA investors analyzed the pros and cons of annuities and spent $51.3 billion on them.

Sound like a lot? Maybe not. Turns out that we bought $58.5 billion in annuities in the same quarter of 2015, which represents a 12.3 percent decline in one year best rated annuity in tennessee.

What’s going on here? Have the tides turned or are more investments clogging the market and our wallets? Read on for a major return on investment.

Pros and Cons of Annuities 101

Mastering annuities can take an entire semester or more in a hard-core economics school, but we’ll try to break it down for you companies that offer annuities in tennessee.

• Annuities are retirement-focused investments that pay you money.
• You can pay a lump sum (one-time) for the annuity or schedule payments, depending on the annuity and your Advisor.
• Excellent option for tax-deferred retirement income
• No annual contribution limit
• Not all annuities are the same. They include:
• Fixed (Guaranteed income no matter what happens to the market or the insurance company, but these annuities do not adjust with interest or the cost of living)
• Indexed (Flexible, but also returns a guaranteed minimum)
• Variable (Totally dependent on how the funds you select to do in the market, this is your riskiest option)

Pro: Fee-Free Fix!

If the idea of paying fees for an annuity just doesn’t add up, an indexed or fixed annuity may be an ideal match for your investment portfolio. You can buy these types of annuities from an insurance company and will not be assessed an administrative fee on top of what you put into the fund unless you add a rider or a link to the rider.

Buyer beware! These types of annuities don’t have administrative fees, but that doesn’t always stop less than respectable agents from trying to tack them on.

And you probably know we can’t get something for nothing.

As you enjoy the benefit of the no-fee annuity, keep in mind that you will (more than likely) experience fees if you withdraw from that annuity before the agreed-upon period ends. When you do need to make withdrawals, you may face surrender charges.

Financial companies have to make their money somewhere. But if you purchase this type of investment, choose one that has a term you can be happy with long-term and you’ll be feeling free.

Con: Early Demise Can Bring Surprise

And we aren’t talking about to the decedent.

When you purchase an investment, you’re looking into that crystal ball of the future for a long, long way off.

Unfortunately, life tends to get in the way of our plans.

Let’s say Person A purchases a 10-year annuity at age 55, expecting the annuity to come due at age 65. Person A then passes away at age 57, 8 years before the annuity date.

As the University of Wyoming explains, if the annuity holder dies “early,” the annuity could lose value as it passes on to the next property holder (the designated recipient from – in this case – Person A’s will).

Of course, it’s good to plan for the future and no one knows what the future will hold, so not purchasing annuities out of fear can really hold you back.

Pro: Income Stream, Flood, or Trickle

For many, annuities are a choice because of their income-providing potential.

You may be thinking, if I have the money, why am I going to give it to an Advisor who will then slowly trickle it back to me?

It almost makes this consideration of pros and cons of annuities more like no and cons!

But let’s take a step back.

Yes, you’re handing over a (sometimes large) lump sum of money.

But these “immediate annuities” really do provide you that stream of income because you get back guaranteed payout for as long as you live. Whether that amount surpasses your lump sum or not, you continue to receive the payments.

Whether you’re about to be swimming in a small creek or a huge basin of water-slash-income for the rest of your life depends on how you set things up with your Advisor.

Con: You Need Money to Make Money

Unlike stocks which you can literally purchase for a couple of bucks a share or bonds with just a small out of pocket cost, annuities don’t come cheap.

Some annuity advisors suggest you start with a minimum of $10,000 to $25,000 investment. Remember, when considering the pros and cons of annuities, you need to keep in mind that the annuity is supposed to be an income stream for life. That $20 for the hot stock on the market won’t get you very far in annuity land.

Also, the more money you can invest in an annuity, the better rates you can get. It may not seem fair that those who have the money to assure themselves a better income stream later in life may not need it.

But that’s how the annuity world works and once you understand it, you can play it to your benefit.

Ask your Advisor if he or she offers flexible premium annuities. Not all of them do, but you may be able to enter into this type of annuity with a minimum purchase of just $100, which definitely does seem more “flexible” than $10,000.

Cash In on Your Experiences Here

Still feeling like less than a hundred bucks at all the pros and cons of annuities?

Don’t worry. Help is available.

Free help. With no administrative fees or early withdrawal penalties!

Click here to sign up for a free consultation and annuity review. (Guess you CAN get something for nothing!)

By the way, be sure to ask your prospective agents about their experiences and length of time in the business. We don’t want to scare you, but if your Advisor goes out of business, you may lose your annuity investment, too.

This depends on the investment and other legalese, but it’s all the more reason to be informed, to make good choices, and to not get ripped off.

We’d love to hear from you, too, about your annuity experiences. Have you ever had to make an early withdrawal? Did your annuity consultant assist you?

Please share in the comments below and let’s help each other start saving!

Pros and Cons of Annuities: Investing For Retirement

It may send your mind into an infinite loop to imagine using money to buy money products, but that’s just how the financial world works. And Americans did just that! In just the third quarter of 2016, USA investors analyzed the pros and cons of annuities and spent $51.3 billion on them.

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Protect Your Annuity From Creditors

O.J. Simpson & Florida Exemptions For Annuities

Remember O.J. Simpson? I’m not talking about the notorious car chase in the Ford Explorer. According to MarketWatch, O.J made some poor financial decisions in Vegas. Consequently, those decisions led to lawsuits that ordered him to pay back creditors. O.J. put most of his money in annuities in south Florida where he lived at the time. Lucky for him, statutes in the state of Florida shielded his annuities from being touched by creditors. “If the glove don’t fit, you must acquit” may as well be, “If annuities hold your cash, you’ve protected your own a$*”. You get the picture.

Florida is one of the states that many business owners, physicians and wealthy investors choose to invest, as 100% protection is offered by the state’s annuity laws. In fact, Florida state law protects your home once it is paid off in full. This means that if you’re ever sued, or creditors attempt to collect your debt through he seizure of assets, they cannot touch your home or your annuities. Yet, many annuitants don’t know the laws of their state best annuity companies in tennessee.

Plan For The Worst, Hope For The Best

Why is protecting your annuities important? You can never really plan when you’re going to be sued. However, IRA’s and retirement planning can protect your assets. How? Your retirement plan is protected under federal law even when filing for bankruptcy! Do I have to spell it out for you? Find out if you live in one of the states that protect your annuities!

Which States Offer 100% Annuity Protection?

Some states offer 100% creditor protection. Arkansas, California, Florida, Georgia, Hawaii, Indiana, Texas and Louisiana offer 100% annuity exemption. Maryland, Michigan, New Mexico, Ohio, and Oklahoma do as well. Kansas exempts annuities that have been maturing for a year or longer. Tennessee allows annuity protection from creditors only if it’s part of your retirement plan.

Some states allow an exemption only if you have beneficiaries such as a spouse and/or children. New York exempts only a decided amount after a “due and proper amount” is paid to the creditor(s). Furthermore, states such as North Carolina, New Hampshire, Mississippi, Maryland and Connecticut offer no annuity protection from creditors at all. Statutes are different from state to state. As a result, you have to know if you are protected. Protect Your Annuity From Creditors.

Your Guide: Which States Protect Your Ass-ets

Finally, you have to consider your beneficiaries. Your spouse and children may depend on your assets in case of medical emergencies, or a college fund. In addition to living in a state that has fair statutes for your annuities, you may also want to learn about the different kinds of annuities. While your bank may offer some insight, it’s better to know for yourself from a source that doesn’t have a vested interest in your investment. Read my blog on fixed indexed annuities for details about the most popular annuity that consequently gives you the highest interest. Use this as a guide to check the statutes in your state.

Does Your State Protect Your Annuities From Creditors? Annuity Exemptions By State – Tennessee Annuity Rates

Annuities are like other financial assets. Often times, litigation efforts and creditors are able to gain access to them. As a result, the money you worked hard for is at risk. Remember O.J. Simpson? I’m not talking about the notorious car chase in the Ford Explorer.

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