An annuity is a financial tool that is used to build or protect a retirement Fund.
Congress enacted legislation a number of years ago that allows individuals to
invest money through an annuity without paying taxes on the earnings. The
annuity regulations creates two advantages:
1) Income taxes are due when the dollars are withdrawn.
2) Your money is compounded. Your “earnings” earn dollars.
You now have a basic understanding of an annuity. The next step is to learn
about the types of annuities.
Fixed Annuity - A fixed annuity earns a specific interest rate over a specific time
Fixed annuities may have a “set” interest rate for the term of the annuity. Others
will have the interest rate “reset” on the anniversary date. This let’s the annuity
owner take advantage of rising interest rates.
Index Annuity - An index annuity increases its value when a stock market index
raises and falls. Most index annuities. Use the S& P 500. Although using an
index sounds “risky”, they are not. An Index Annuity can increase in value but
CAN NOT decrease in value. That is you can NOT lose money. You get the
benefit of stock market fluctuations with no possibility of loss. Also, some
Index Annuities allow you to move your funds in and out of interest rate
Variable Annuity - This type of annuity invests your hard earned dollars in
Equities. That is stocks. You are subject to the rise and fall of the markets. You
could lose “it all”. Mr. Bell advises against this type of annuity.
Let’s continue our annuity education by reviewing some terminology:
Term - The length of an annuity contract. Generally the term is in years.
Guaranteed Rate - The minimum interest paid.
Guaranteed Period - The amount of time that the interest is paid.
Surrender Charge - A fee assessed by the insurance company for withdrawing
funds before the end of the annuity term. Most annuities contracts allow the
annuity owner (you) to withdraw up to 10% annually without penalty.
Annuitization - Transforming your annuity into a retirement fund with scheduled
Annuitization Period - The amount of time needed before a payments can begin.
Death Benefit - Monies paid to the beneficiaries if the annuity owner dies. The
amount includes funds deposited plus all interest earned.
Terminal Illness - Some annuities allow the annuity owner to withdraw all funds
if a terminal illness occurs.
Nursing Home - Some annuities allow withdrawal of all funds if the annuity
owner is placed in a skilled nursing home.
One company developed an annuity that has Long Term Care coverage. The policy value is doubled for LTC coverage (A $100,000 annuity provides $200,00 LTC coverage).
There are many annuities that can be had. Robert prefers to “talk” with you so we
can determine your needs and wants. Remember it is YOUR decision.