What’s the difference between traditional Medicare and Medicare advantage?
The Difference Between Traditional Medicare and Medicare Advantage When turning 65, you find yourself
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Clients often ask us,”Can you do better than the bank?”. Very often, that answer is YES! Over the years, we have made sure to have an arsenal of trusted products that will protect your money, and guarantee a return.
With banks offering less than1%, we can guarantee a higher yield. The video below demonstrates how we offer a minimum of 1% on of your money. That means you will not lose money and gives you the safety and stability you need for your hard-earned dollars!
If you have a CD maturing in the next 90 days, this is a perfect time to sit down and discuss your options.
What is an annuity?
An annuity is a guaranteed investment product with an insurance company. Annuities were developed to compete with other guaranteed investment vehicles. However, they often outperform some risk investments.
The goal of annuity is to provide a fair return, whether a fixed rate or an indexed rate, that will hopefully outperform other no risk investments, as well as some risk investments. Funds accrue on a tax-deferred basis, and like 401(k) contributions, can only be withdrawn without penalty after age 59.5.
There are “qualified” annuities, which are tax deferred. There are also “non-qualified” annuities. A great feature on these products is that whether the annuity is qualified or non-qualified, you do not receive a yearly 1099 until you withdraw money.
Some of the benefits of an annuity
Who should consider an annuity?
Some of the main priorities I hear about.
The Different Types of Annuitie
Fixed Annuity
The fixed annuity is a small portion of my business.
A fixed annuity is a type of annuity contract that allows for the accumulation of capital on a tax-deferred basis. In exchange for a lump sum of capital, a life insurance company credits the annuity account with a guaranteed fixed interest rate while guaranteeing the principal investment. A fixed annuity can be annuitized to provide you with a guaranteed income payout for a specified term or for life.
So, if you invest a specified amount to an insurance company (often a minimum of $10,000). In return, you’ll receive a guaranteed, fixed return that will never vary. At the end of 5 – 10 years, they are typically fully accessible. You may usually have access to 5-10% of the principal per year without penalty.
Fixed annuities are contracts issued by life insurance companies to individuals looking for guaranteed rates of return without any risk to principal. Because they are a type of insurance contract issued by a life insurance company, they have some of the same tax benefits of life insurance policies, such as tax-deferred growth of earnings. Taxes are paid when the earnings are withdrawn or when the contract is annuitized for monthly payments.
Key Features of a Fixed Annuity
Competitive fixed yields:
The rates on fixed annuities are derived from the yield a life insurance company generates from its investment portfolio, which is invested primarily in high-quality corporate and government bonds. The yield on fixed annuities is typically higher than the yield on equivalent riskless investments and is often guaranteed for a period of one to 10 years.
Guaranteed minimum rates:
Once the initial guarantee period expires, the rate is adjusted based on a specific formula or the prevailing yield earned in the insurer’s investment account. As a measure of protection against declining interest rates, fixed annuity contracts include a minimum rate guarantee.
Tax-deferred growth:
As a tax-qualified vehicle, fixed annuities offer tax-deferred accumulation of earnings. For people in the higher tax brackets, this can make a significant difference in the amount accumulated over time. When the earnings are withdrawn or taken as income, they are taxed as ordinary income.
Withdrawals:
Fixed annuities will allow for either one withdrawal or multiple withdrawals per year anywhere between 5 – 10 percent of the account value. During the surrender period, which can run from one to 15 years from the start of the contract, withdrawals over 10 percent are subject to a surrender charge. The surrender charge declines each year until it reaches zero and withdrawals are free from this charge. Withdrawals made prior to age 59 ½ may be subject to a tax penalty of 10 percent in addition to ordinary income taxes.
Who Should Consider a Fixed Annuity?
If you want a no-risk investment, you might pick a fixed annuity over a CD to defer the taxes, and possibly earn a higher interest rate than what the banks are paying.
Fixed Index Annuity
The fixed index annuity is the type that I most frequently favor. With a fixed index annuity, the principal is guaranteed even if the market goes down. Some even offer a guaranteed rate of return.
A fixed index annuity is a tax-favored product issued by an insurance company. With an index annuity, the annual growth is bench-marked to a stock market index (e.g., Nasdaq, NYSE, S&P500) rather than an interest rate. An index annuity’s growth is subject to rate floors and caps, meaning it will not exceed or fall below the specified return levels even if the underlying stocks fluctuate outside of those set parameters. In simplest terms, the insurance company bears the risk of a sharp stock market decline with this type of annuity. You cannot lose any of your principal with a fixed index annuity, and your potential gains usually do substantially better than the other no risk investments.
Fixed Index Annuities Offer Tax Deferral
One advantage that a fixed index annuity has over a mutual fund or a bank Certificate of Deposit (CD) is that earnings grow on a tax-deferred basis. This means you pay no income taxes until you withdraw money from the annuity. This is especially important when you buy your index annuity with personal savings (so-called after-tax or “non-qualified” funds). Index annuities can also be purchased using rollover, funds transferred from a tax-qualified plan (i.e. IRA), or with a lump sum distribution from a 401k or pension plan.
The key concept with fixed index annuities is that the return is based on market performance or whatever index the insurance company uses or some combination.
The returns vary by company, but your growth is always protected. If you have a “good” year and it goes up 8% but then there’s a correction in the market, you keep your 8% growth. They also reset. Therefore, if the market goes from 2800 to 2400 in a year, your second-year return will be based on the growth from 2400, not 2800.
Immediate Annuities
Before you can decide whether an immediate annuity is a good choice for you, it’s important to consider the advantages and disadvantages of this type of investment.
Here are some of the advantages of immediate annuities:
Clients often ask us,”Can you do better than the bank?”. Very often, that answer is YES! Over the years, we have made sure to have an arsenal of trusted products that will protect your money, and guarantee a return.
With banks offering less than1%, we can guarantee a higher yield. The video below demonstrates how we offer a minimum of 1% on of your money. That means you will not lose money and gives you the safety and stability you need for your hard-earned dollars!
If you have a CD maturing in the next 90 days, this is a perfect time to sit down and discuss your options.
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