The purpose of an IRA is to create future, guaranteed income in retirement. Investing your IRA assets into an income annuity creates the most guaranteed lifetime income, WITHOUT PRINCIPAL RISK.
IRA assets are being transferred from risky equities to guaranteed income annuities, in record numbers. These annuities are contracts that guarantee the principal will never be lost in down markets and they guarantee income that is payable for life.
Most of the people we speak with are more interested in being invested in the right strategy that guarantees maximum future income without risking principal. Billions of dollars every year are being moved out of brokerage firms and into annuity contracts because a diversified portfolio of equities leaves your retirement assets exposed to risk. As a result, these brokerage and wealth management firms respond with aggressive campaigns designed to discredit annuities. One brokerage firm, Ken Fisher, rails against annuities as their main marketing campaign.
Income Annuities Are Right For IRA Assets.
You are required to take annual distributions from your IRA at age 72. These income payments are pre-determined by IRS guidelines, known as Required Minimum Distributions, and the IRS does not require that your distributions must be payable for life. That responsibility falls on the IRA owner. Even though most people WANT guaranteed lifetime income from their IRA, most are not invested for that outcome. Most people have their IRA assets invested in a high percentage of equities.
A simple comparison tells the story.
Assume that two 65 year olds have identical IRAs, currently worth $500,000. The primary goal at retirement is to provide guaranteed income for life. At 72, they must begin taking income payments (RMDs). The two IRAs are identical except for how the $500,000 is invested in each.
Traditional IRA #1 is invested in diversified securities.
IRA #2 is invested in a guaranteed, income annuity that will pay income FOR LIFE. It can NEVER LOSE PRINCIPAL and the INCOME is contractually guaranteed. It will share in market gains when the markets are up.
ANNUITY + IRA = PEANUT BUTTER & CHOCOLATE
The IRA with the income annuity is better because it provides the HIGHEST GUARANTEED PAYMENTS FOR LIFE, without assuming any risk. The IRA with diversified securities can lose principal at any time. Losses are devastating in retirement considering that there is no future income to offset them.
If you agree that important goals in retirement are to preserve principal and make sure you don’t outlive your money, then Few things create guaranteed lifetime income like an annuity. Some critics say the tax deferred status of an annuity is wasted inside an IRA but this is not so. It is a classic red-herring argument designed to confuse people. The IRA’s primary objective is to create maximum retirement income for retirement and the indexed annuity does exactly that.
If you are unfamiliar with how these special annuities strengthen your IRA distributions, I offer a complimentary discussion to help give you a better understanding of these vehicles.
Economists and professors from Harvard, Wharton, Duke and Stanford all agree about the undisputed advantages and benefits of indexed annuities.
Says Michael Kitces, investment planning expert: “Given these changes, it is perhaps time to abolish the ‘annuities should never go into an IRA’ rule and recognize that it has become more a myth and remnant of old than proper advice in today’s environment.”
Millions of Americans are frustrated by record low interest rates and how they are affecting your savings and your retirement plan. Whether you have money in CDs, money market accounts or government bonds, there are better options. Instead of accepting 0%, we can helpyou can get at much higher guaranteed interest, without giving up safety or liquidity.
Get Better Returns During This Prolonged Period of Low Interest Rates.
Why not consider a 200 year old option where everything is guaranteed and currently offers fixed rate near 2.5%? It is short term, liquid and the income is not taxable until it is withdrawn, unlike other investments which tax the minimal growth each year. This option gives you a real chance of getting tax deferred, compounding interest.
With the Federal Reserve signaling that benchmark, short term interest rates would likely be held near zero until 2023, many may be reminded of the period following the last recession, which lasted for seven years. The Wall Street Journal, September, 2020
Zero percent rates are punishing savers. CNBC predicted that rates will not rise until 2025!At this point, we have to believe the Fed about rates. Some banks have announced they will soon be at NEGATIVE RATES.
We help consumers locate better solutions. For example, indexed annuities are liquid and currently paying GUARANTEED ANNUAL RATE near 2.5%. The advantages are:
100% guaranteed.
More than 2.5% is possible by allocating to the indexed funds, without taking any principal risk. The index rates are NEVER less than 0%.
All gains are kept and can never be lost.
No principal risk; no market risk.
Minimal surrender charges; small market value adjustment on early year surrender can be positive, or negative.
Tax deferred.
Protected by a contract from highly rated insurance companies.
Financial Engineering: Instead of using indexed annuities with built-in commissions, we utilize fee based alternatives to boost the returns and the early year liquidity. This is state-of-the-art value creation, leading to better returns. Alternatives like these minimize the individual risks and maximize safe, upside potential.
Annuity Alternative
Money Market
Savings Account
CDs
Bonds Bond Fund
~2.5%
Less than .02%
Less than .02%
Less than .02%
Variable
Liquid
Liquid
Liquid
Less Liquid
Less Liquid
Tax Deferred
Taxable
Taxable
Taxable
Depends
Guaranteed
Guaranteed
Guaranteed
Guaranteed
Not Guaranteed
Up to 5% with no risk.
Current rate Less than .02
Current rate Less than .02
Depends on Duration
Depends on Duration
What makes this annuity alternative so much better?
Individual investors can not match the investment skill or the investing scale of insurance companies. With the brightest investment people working 24/7 to grow and protect your money, insurance companies are investing billion dollar portfolios. As individual investors with far less to invest, we cannot commit the necessary attention to safeguard our own investments in the same way. It’s win/win money management because you share in the upside when markets are up, without taking any principal risk.
How Much Interest Can I earn?Many people choose the fixed account rate that is currently paying 2.45%. Others choose one of the indexes linked to the S&P which puts you in position to earn as much as 5%. And others choose a blended approach that creates some guaranteed income plus potential for double the guaranteed rate. Higher interest rates are achieved without any principal risk. Net of fees, the returns are far superior to savings accounts, money markets and fixed income products. Furthermore, taxes are deferred and principal is creditor protected.
We are facing the real probability of negative savings rates.Imagine paying a bank to hold your money? It doesn’t seem possible but neither did zero percent interest rates seem possiblea few years ago.
If you find better rates in the future, you can liquidate without surrender penalties. However, higher rates elsewhere will likely mean that insurance companies are also increasing their fixed ratesin order to remain competitive.
Let us help you plan for this low yield crisis. Learn about these successful strategies by taking a complimentary phone call or requesting a customized quote. For more information about short term solutions, click here:
Start the ball rolling by simply filling out the contact form on this page or any page of our website. You can reach us at 561-771-4647 or 561-869-4500.
How long will interest rates remain low, click here:
“You have asked an excellent question. Thank you for asking. The Stock Market is in a Bear Market even though the Financial Services Industry would prefer that the average American not know this reality.
Below is a chart of the S&P500 which is an index of the largest and most important corporations in the US. There are actually 505 companies issues in this index. It is formulated and averaged so it is not the total price of all of these but a value based on this quantitative formula. This is a Monthly Chart so that you can see that this is indeed a Bear Market and that is is just beginning. The monthly chart provides enough data so that you can see the prior two most recent Bear Markets also. The Bear of 2000–2003 and the Bear of 2007–2009. And at the far right hand side, the current bear of 2020 -______.
There were also the SARS epidemic of 2002, and the H1N1 Flu Pandemic of 2009. So all 3 Bears had either had a serious new novel virus develop at some point in the bear cycle. Now, please remember that technical analysis is NOT a predictive tool. It is a graphical tool that uses historical data to study prior market activity to understand the current situation. Every Bear Market is unique but every bear market has similarities to past bear markets. Studying 120 years of bear markets, the average bear loss is 50%. The duration is average 1.9 years depending on the speed of the loss. Slower bear declines last longer, fast steep bears are shorter in duration.
The Stock Market LEADS the economy. In other words, the stock market reflects the corporate and business health at growth potential BEFORE the economy goes into a recession AND before the economy begins to recover and later expand. Studying the history of the past two bears we can see that the stock market recovered well ahead of the economy. The recessions lasted longer but the stock market was already bottoming and moving upward as the recessions continued. It is common for Bear Markets to have 3 phases: Denial, Disbelief, and Capitulation. The recent rebound occurred (indexes and components moving up) occurred precisely at a strong technical support level. Technical indicators signaled early that a rebound aka fake rally was likely as the indexes hit that support level.
Banks acting as Market Makers supported the major index components which are heavily weighted to specific corporations deemed most important to the economy by the banks, financial industry and government. Then the Financial Services Industry, needing inflows of money to stay in business launched a massive promotion to new investors and inexperienced investors telling them that the recent market crash was an “opportunity to buy stocks at bargain prices!”
So many younger investors, or new investors who know nothing about how all of this works as the educational system in the US doesn’t provide education about the financial markets even for college students unless their degree is in financial services. Many new franchises also started recently from the popular neighborhood broker franchises. You see them in the strip malls. These smaller funds managers are new too and trust their corporate statements which tell them how to promote to get more money to place to stay in business. There has been a massive amount of money taken out of the stock market over the past 2 years. Money Market Funds are holding a vast quantity of funds in safety while this bear is still going on. These are the wise, experienced, educated investors who wisely sold during the speculative activity in 2019 to January 2020. The first quarter earnings season starts April 14th. The professional side of the market knows that the earnings reports are going to be the worst since 2008–2009, perhaps worse.
The recent runs up are technically very fragile. There is no longer billions of corporate cash to continue buybacks which fueled the 2018 -2020 speculative bubble. Therefore, this bear market is just on pause for the moment. The market is not in a rally. Stocks are not near their previous all time highs. This is just a bear market bounce. These happen periodically during a bear and mislead the average investor into buying stocks into a bear market…” April 24th, 2020
We all wish we could make money when the markets are up and avoid losing it when markets are down. Conservative and aggressive investors alike – nobody wants losses!
As investors, we want the best of both worlds. When markets are up, we want to stay invested with minimal risk and we want to protect our gains. It is tempting to let it ride just a little longer and to stay fully invested, often against our own, best judgment. The problem is that markets take sudden turns for the worse. When they do, it can be paralyzing and difficult to minimize losses or to get out at the right time. It is difficult to consider changing course during these times and it is equally difficult to watch your assets plunging. With retirement assets, a sudden move down can be very costly. Waiting for the markets to cycle back up again is a completely different experience at age 67 than it is at 45. Time is not on your side. Depending on the severity of the drop and its duration will determine the extent of your losses.
The Good news.
The best time to consider alternatives is at the top of a market cycle. Instead of being too heavily invested in equities that offer no protection, a balance of income generating assets and equities will better protect your retirement assets. Income generating annuities are state-of-the-art, with indexes that participate in rising markets. Since they are not investments, there is no investment risk. Your principal and any growth is always guaranteed. While there is nothing inherently wrong with risky investments; they should not be the foundation of a retirement plan.
What I am asking you to consider are guaranteed income contracts or Fixed Indexed Annuities. Think of them as marketindexed annuities because returns are partially based on how markets perform, without every being exposed to market losses.
“ROI is Reliability of Income in retirement, not Return on Investment. The goal of retirement security is achieved through a shift in focus from asset accumulation to income and asset protection.
Annuities are over 200 years old. THERE IS NO LOSS OF PRINCIPAL which is the PRIMARY ATTRACTION of an indexed annuity. During the 2008 Financial Crisis and the Covid bear market drop, none of our clients lost a dollar in their fixed indexed annuities. Today, there are millions of indexed annuities inside IRAs and other retirement plans. People want gains when the markets are rising and they want guaranteed income for life with downside risk.
The world’s leading economists all agree about the value of annuities in retirement. Consider what they say because they are unbiased and impartial. It makes no difference to them whether we invest our retirement assets in hedge funds or annuities. When Olivia Mitchell from Wharton (check out her incredible resume) says that annuities are key assets to own in retirement, she is saying so because she’s spent her entire career studying these issues. Nobody explains why mortality credits are the most valuable asset in annuities, better than Tom Hegna. When Professor Wade Pfau at The American College, or Roger Ibbotson from Yale write books about the advantages of annuities, their pro-annuity positions are credible because they don’t sell products.
Professor Pfau stresses that “investors typically fall into the ‘trap’ of depending on investment portfolios as the chief way to fund their retirement. Now, many of these folks in retirement find themselves needing a life raft…acquiring an annuity would have prevented such a dire scenario“, he argues.
HOW CAN YOU DO THIS?
Theseannuities are designed to modestly beat the performance of other fixed income products and typically, they do just that. There are also times when they do much better. These are important years that can really boost the overall performance of an annuity. For example, many of our clients earned as much as 14% from January, 2019 to January, 2020. Those were extraordinary returns because the market was experiencing extraordinary growth during that same period.
More Good News: The gains credited to an annuity contract can never be lost. The upside potential of an indexed annuity is determined by a contract, offering an additional level of security.
Personally, I do not like to hype the upside of market indexed annuitiesbecause their other advantages can be just as powerful.
Let no one with a financial interest in your assets dissuade you from making a financially sound and prudent decision, especially one that may be in your best interest. When you move money away from stock brokerage firms or wealth management firms, they’re losing significant, recurring revenue that is earned from your assets. I have no problem with fees charged by professionals. But, it should come as NO SURPRISE if they make you second guess a decision to move your assets away from their firm. To keep this simple, if you pay an annual fee of 1.5% on $1,000,000 of assets, that is $15,000 per year, or $150,000 of your money over 10 years.
When markets tumble and the assets in your account go down, so too does the revenue for the investment firm and the investment manager that is managing your money. Can you trust the advice of an advisor who loses annual income if you liquidate or move your account? Is that structure in your best interest? Most investors are not aware of these potential conflicts and many are surprised when they finally understand them.
Who doesn’t want more guaranteed, lifetime income? These annuities pay you for as long as you live AND guarantee the principal – forever. If the market drops 30%, you lose nothing. If you want certainty, predictable outcomes and no anxiety over your retirement security, this is for you.
“You pay no commission from your annuity assets. Instead of paying “forever fees” in managed accounts, fees that are directly reducing your retirement fund each year, there are no annual annuity fees*. The one-time commission is paid from the assets of the insurance company, NEVER FROM YOUR ASSETS! The interest calculations, participation rates and the contract terms are regulated by the Department of Insurance in your state.”
*Some people choose riders that may have annual, disclosed fees.
Guaranteed annuities are ideal for those of us who cannot stomach market volatility or wondering when the next crash will begin. Many people cannot tolerate watching their retirement assets evaporate during these market events. Hearing an advisor tell you “not to panic” or “it always comes back, be patient”, doesn’t help. That’s never easy to hear. In, or near retirement, you must be aware of a risk called “sequence of returns risk”. If markets are down near the beginning of your retirement, down years can be far more damaging. If you are drawing money from your retirement assets, down years can be more damaging.
From 2000 to 2020, there have been three major bear markets and if you owned an indexed annuity, you avoided all three. That’s “peace of mind” – not a dollar lost over 20 years. Market indexed annuities are only available from major insurance companies because only these insurance companies are financially strong enough to provide the guarantees. They prove their financial strength to regulators and rating agencies each year.
The numbers say it all. In the chart below, the market-indexed annuity has performed nearly as well as the S&P 500 total return index (including dividends). WITH NO RISK!
Are annuities safe? If you are a conservative to moderate investor, why not let a market-indexed annuity take some of the most important guesswork out of your retirement planning? When the indexes are up, you can make money. If markets crash or if volatility takes over, you will never lose money. Keeping this simple, if you had put $500,000 in an indexed annuity in January or February of 2020, you still have $500,000 of principal today, plus possible gains. Your principal is always intact — always at the highest level it reached, which is called the high water mark.
You want the best of all possible worlds.
How Does This Work? Since the insurance company guarantees the principal, they share in some of the upside, when the markets are up.
“Don’t compare annuities to what might have been if interest rates had been higher, compare them to what is possible and available now. Now we are stuck with low rates. Trying to wait for rates to increase is going to eat away at your assets in the meantime, and there is nothing you can really gain from the effort. Low interest rates strengthen, not weaken, the case for purchasing a single premium immediate annuity.” Wade Pfau
Ken Fisher hates annuities.Why do some financial “experts” criticize annuities? Everytime a Ken Fisher client liquidates and moves money to an insurance company for the purchase of an annuity, Ken Fisher’s firm loses annual recurring revenue. Maybe this is why Ken Fisher hates annuities?
Which Is The Best Indexed Annuity?
There are thousands of annuities in the market. It is our job to know them and to know which one suits you best. To do that, we listen to what you expect in order to meet your goals and objectives. Some contracts are too expensive and some carry hidden fees and charges. You want to make sure to buy the right indexed annuity from an experienced professional who only represents insurance companies with high ratings.
Ready to start protecting your retirement assets and never lose money in the market again?
Contact us and allow us to answer all your questions? You have nothing to lose by taking a complimentary phone call. Time does matter. A low interest rate environment forces insurance companies to lower the rates for new clients. Safety is what drives their investment decisions and in order to properly respond to lower interest rates, they will change their offers accordingly.
Start the ball rolling and call us or fill out the simple contact form on this page or any page of the this site. We can be reached at 561-771-4647
Annuitization involves converting your accumulated retirement assets into a series of periodic payments that last for a period of time of your choosing, in accordance with the provisions of the annuity contract.
Deferred Annuities are annuities that can be funded through a single premium or through flexible payments over time. Can potentially help you to accumulate money for retirement, especially over an extended period of time. Your money grows tax deferred, which means you pay no taxes on earnings until you withdraw your money.
Did you know that most fixed annuities have no fees? Over time, the absence of any fees is powerful.
Distribution Period is the period of time, either a specified number of years or lifetime, over which distribution payments are made to the annuitant. Earnings become taxable when the annuitant begins to receive payments. The payout during the distribution period can either be fixed or variable.
Fixed Annuities are annuities that guarantees you a specified rate of interest for a specified amount of time. Offers preservation of your assets and protection from market volatility. There are many types of fixed annuities with varying degrees of complexity.
Flexible Premium Annuities are funded over a period of time, generally years. Allows you to pay premiums of differing amounts (within a stated minimum and maximum) on a set schedule or randomly. Your assets accumulate on a tax-deferred basis and can fund either fixed or variable deferred annuities.
Immediate Annuities These begin payments for life or for a specified amount of time in exchange for your one-time contribution. Regular payments can be received on a monthly, quarterly, semiannual or annual basis. A portion of each payment represents taxable interest, and the other portion is a tax-free return of your principal. These can be great for retirement planning purposes, when maximum income is important.
Premature/Early Withdrawals (Distributions): Withdrawals are reported as income and are subject to ordinary income tax treatment (as opposed to capital gains or dividend income), and if made prior to age 59½, may be subject to an additional 10% federal income tax penalty. In addition, company imposed surrender charges may apply to certain withdrawals.
Single Premium Annuities: They provide a way to turn a large sum of cash into guaranteed income. For those who have cash from an inheritance, legal settlement, business sale, etc., can fund an immediate or a deferred annuity. For those nearing retirement, who have assets accumulated in a retirement plan or other savings vehicle, can fund an immediate or a deferred annuity.
Return of Premium Rider: guarantees AT LEAST 100% of what you paid in premium whenever you surrender. For many people, their only concern about making an annuity purchase is the penalty for early surrender. Not all insurance companies offer this valuable feature and most annuity salespeople don’t offer it because they are paid less and commission is vulnerable for several years.
Systematic Withdrawals: allow you to withdraw money from the accumulated value of your contract on a regular schedule – making it an effective way to supplement income either before or after retirement. Systematic withdrawals are also flexible.
Variable Annuities: offer opportunity for asset growth through a variety of investment choices tied to market performance. With their greater opportunity for growth, comes greater risk. Variable annuities are subject to loss of principal.
Withdrawal Charges, Surrender Charges, Surrender Penalties: are charges that typically decreases annually until they reach zero.
Fixed Indexed Annuity With Income Rider: creates guaranteed income for life. The income level grows until you activate the rider and begin taking lifetime income. There are contracts with inflation riders and long term care riders that increase the income payments.
More annuity terms, definitions and frequently asked questions:
A
Account value
The amount of money in an annuity, working for the owner, before possible surrender charges.
Accumulation phase
The time frame during which the account value has the potential to grow. Also known as growth phase or growth period.
Advisor
A qualified person who can help annuity buyers understand their options and make financial decisions pertaining to their financial goals and objectives.
A person who will receive the income payments from an annuity. (They could be the direct owner of the annuity or another person chosen by the direct owner, and they are the person whose lifetime income the payments are based on).
Annuitize
When the annuity leaves the accumulation phase, turning the current account balance into a series of periodic income payments, either for a set period of time or for life.
Annuity
A financial product that offers guaranteed lifetime income with the potential of growing the principal.
Risk Appetite
The level of market risk that is acceptable to annuity owners. Risk comfort level, Risk tolerance, Degree of certainty, Risk appropriateness, Investor confidence.
B.
Beneficiary
The person designated to receive any remaining account balance or income payments once the owner is deceased.
Benefit
A feature that can provide added value or protection to the policyholder and/or beneficiaries, sometimes at an additional cost. Optional benefit, Rider, Waiver
Benefit to heirs
The balance that is paid to a beneficiary, typically the remaining account balance or income upon the annuitant’s death. Beneficiary benefit, Death benefit, Legacy benefit, Legacy, Legacy protection benefit, Family protection
Annuities have decreasing surrender charges that are usually gone in 7-10 years. The purpose of surrender charges is to allow the insurance company to invest in longer term assets, creating better yields for policyholders.
C
Cap
The maximum interest credited to an annuity at the end of a selected time period. The annuity owner will choose the time period that’s best from available options.
Charge
The amounts deducted from the contract, which may include setting up the annuity, adding optional benefits, etc.
Simpler term: Fee or Cost
Contribution
The payment paid into a contract. For most annuities, this is the paid in money.
Simpler term: Premium, purchase payments
Co-owner or Joint income option
An optional benefit that offers guaranteed withdrawals for life for both you and a loved one.
Related terms: Joint option, Spousal option, Income for two, Joint guaranteed lifetime withdrawal benefit, Joint protected lifetime withdrawal benefit
Commission
The amount of compensation paid by insurance companies for the sale of annuity products. The compensation is paid by the insurance companies, from its balance sheets, not the assets of the policyholders.
Contract value, account value or account balance
The amount of money working in the annuity.
D
Death benefit
A benefit paid to beneficiaries, typically the remaining account balance or income upon death. Legacy benefit, benefit to heirs, legacy protection benefits, family protection
Decumulation
The point you when an annuity ends the accumulation phase and begins to make income payments. Spending phase, income or distribution phase.
Deferral bonus
A bonus amount that may be added to an annuity for each year income is deferred. Typically, this bonus is added each year, up to a certain age.
Deferred annuity
A type of annuity that delays payments until the policy owner chooses to receive them, while providing an opportunity for growth during the deferral period.
Distribution phase
The point when an annuity begins paying income from an annuity.
Diversification
Strategically spreading the account value among different types of investments to help reduce the impact of market downturns. Diversification does not guarantee a profit or protection against a loss.
E
Earnings sensitive adjustment
Additional income received on top of the guaranteed amount, or in addition to any other income increase. This additional income is based on the market performance rate, and allows for additional earnings of otherwise permissible withdrawals. AKA bonus income increase.
F
Family protection
A benefit that pays the beneficiary the remaining account balance or income upon death. Consumer friendly terms are beneficiary benefit, legacy benefit
Fee
The amounts associated with owning an annuity, which may include setting up the annuity, adding optional benefits, etc. Fees can be embedded in the annuity contract or in addition to the premium.
Fiduciary
A qualified financial professional who is required to help consumers make financial decisions in their best interest. (A fiduciary is not the only type of financial professional required to make financial decisions in the best interest of their clients. All professionals should comply with best-interest requirements, as a matter of good practice.)
Financial advisor
A qualified person to help consumers understand their options and make financial decisions to work toward their financial goals. Consumer friendly terms include financial professional, advisor, financial consultant.
Financial consultant
A qualified person who does not earn commissions by helping consumers understand their options and make financial decisions to work toward their financial goals.
Fixed account
An account that earns a guaranteed interest rate and is not invested in or tied to the market.
Fixed annuity
A type of annuity that delivers 100% protection from market downturns with potential for earned interest. Many fixed annuities provide the benefit of a guaranteed interest rate, in addition to downside protection and the potential for earned interest.
Fixed indexed annuity
An annuity that guarantees principal protection from market downturns with the potential for growth tied to a market index by guaranteeing no principal loss and limited returns.
G
Growth period
The period when annuity principal has the potential to grow. (Some annuities allow for additional contributions over time.) More consumer friendly terms include growth stage and accumulation phase.
Guaranteed lifetime income
The payments from an annuity that are payable for life. Unused principal is paid to the contract beneficiaries in most types of annuities.
I
Immediate annuity
An annuity that begins paying out guaranteed income within one year of the purchase date, either for life or for a selected time period. The payments consist of interest and mortality credits.
Income stage
The point when the annuity owner begins receiving income from the annuity. Related terms: Distribution phase, decumulation phase, spending phase
Index participation rate
For some indexed annuities, when the underlying index value increases, the contract is credited with a portion of that increase based on the participation rate. For example, if the market went up 10% and the annuity’s participation rate was 80%, the annuity would be credited with an 8% return, or 80% of the gain. Participation rates are typically not guaranteed. They are subject to increase or decrease, in most contracts.
J
Joint option or guaranteed lifetime withdrawal benefit
An optional benefit that offers guaranteed income withdrawals for life, for two people, usually for spouses. More consumer friendly terms include joint income option, spousal option, joint lifetime withdrawal benefit.
L
Legacy
A benefit that pays the contract beneficiary the remaining account balance, a predetermined level defined in the contract, or income upon death. Other consumer friendly terms are beneficiary benefits, death benefit, legacy benefit, legacy protection benefit and family benefits.
Liquidity risk
The risk that annuity principal may need to be accessed sooner than anticipated, which could result in penalties or impact performance.
Living benefits
Optional benefits available for an additional cost that can offer guarantees, such as a minimum level of income for life or guaranteed income benefits.
Longevity risk
The chance of outliving one’s wealth and not having enough money to live.
M
Market risk
Like most investments, this is the chance of losing money due to unforeseen market downturns.
Market value adjustment
Allows for permanent increases to be withdrawn from the income base when the account balance, or total amount of money in the annuity, exceeds a certain level. This may occur on an annual or daily basis, depending on the annuity.
Related terms: Market value increase, permanent income base increase
Market value increase
Allows for a permanent increase from the annuity income base when the account balance, or total amount of money in the annuity, exceeds a certain level. This may occur on an annual or daily basis, depending on the annuity.
Market volatility
Rate at which markets change price. The way stocks, bonds and other market investments change in value. This market movement may affect the value of an annuity or other investments. Some annuities protect against volatility even when the markets go down.
P
Payment/Payout
Amount of income paid from an annuity with a set frequency.
Simpler term: Income payments, contract payout
Period certain
A payout option that allows annuity owners to choose when and how long to receive payments, including beneficiaries.
Premium
For most annuity types, this is the money paid into the annuity.
Price
The amounts associated with owning an annuity, which may include setting up the annuity, adding optional benefits, etc.
Product
They type of annuity used to pursue specific goals.
R
Rider
A feature that can provide additional benefits or protection to the contract for the owner or their beneficiaries, often at an additional cost.
Risk tolerance
The level of market risk that is acceptable for each annuity owner.
S
Solution
The strategy that is used to pursue specific financial goals.
Simpler terms: Strategy, vehicle or product
Spending phase
The point when the annuity starts making distributions, the decumulation phase
Spousal continuation
An option to transfer ownership or continuation of the guaranteed income to a spouse upon death.
Spousal option
An optional benefit that offers guaranteed withdrawals for life for a spouse. The joint income option
Sub-accounts
The underlying investment choices available in a variable annuity. These typically include stock, bond and money market funds. The annuity investment options.
Surrender Charge
A penalty that is paid to withdraw a certain amount of money from an annuity before the end of a set time period. For example, the annuity may allow for a withdraw up to 10% of the income base within a period of time. If a withdrawal of more than 10% is taken during this time, there will be a fee imposed.
Simpler term: Early withdrawal fee, surrender charge, withdrawal penalty
V
Variable annuity
A financial product that offers the potential to grow money through various market investment options and that can provide income during retirement. Some variable annuities offer optional benefits, available at an additional annual cost, that can protect the lifetime income from market downturns.
Please contact me at 561-869-4500 or complete the contact form on this page to schedule a complementary discussion. Or visit me on: https://www.advisorycloud.com/profile/Ted-Bernstein
Annuity glossary, annuity terms, annuity definition, best annuity
