Annuity Strategies
David Novak
David Novak
Aug 25, 2017
7 min read
Principal Protection
Fixed annuity strategies provide full principal protection from market downturns and completely limit your stock market risk.Fixed rate annuities are CD-like investments issued by insurance companies. They pay guaranteed rates of interest, in many cases higher than bank CDs, but taxes on interest earned are deferred until you take your money out. Currently contracts are available between 2 and 10 years.
Features
No annual fees
Principal protection
Tax Deferred Growth
Competitive Interest Rates
Fixed rate locked in for the specified term
Guaranteed Death Benefit
Can be laddered like CDs and Bonds
Fixed index annuities provide the benefits of fixed annuities, combined with the opportunity to earn interest based on changes in an external market index. They have a call option attached to an index like the S&P 500, Nasdaq or Dow Jones, but because you're not actually participating in the market, the money in your annuity (your "principal") is not at risk.
Features
Principal protection
Tax-deferred growth
One or more index allocation options
A choice of crediting methods
Income options, including income for life
Death benefit options
Option strategies can be changed annually
Fixed annuities protect against the risk of outliving your income. They are backed by insurance companies up to the policy limits, similar to how your home, auto or health is insured. Rates are locked in one year at a time, which gives you the opportunity to take advantage of rising interest rates.
Features
No annual fees
Principal protected
Guaranteed rate locked in annually
Low investment minimums
Can benefit from rising interest rates
Income For Life
Immediate annuities provide guaranteed income for as long as you live and help protect against the risk of outliving your savings. Income payments from annuities can start immediately or at a specific time in the future you choose. The two basic choices are to start receiving your income now or later.
Income Now
If you need immediate income, the following two strategies may meet your needs:Immediate annuities, are pretty straightforward - basically a mirror image of a life insurance policy. Instead of you paying premiums to the insurer that for a lump-sum payment upon your death, with an annuity you give the insurer the cash upfront in exchange for regular income payments until you die. (Actually, you have several options, including payments for a specified period of time - say, 10 or 20 years - or payments that will continue for as long as you or your spouse is alive.) As the name suggests, immediate annuities start paying out right away, so they're are frequently used by people already in retirement. A deferred annuity can also be converted into an immediate annuity.
Features
No annual fees
Provides stable lifetime income
Never outlive your money
Generally higher interest rates than CD or Treasuries
Defer taxes until later in your retirement
COLAs (Cost of Living Adjustments) can be included
Features
Principal Protection
Market linked gains (no risk)
Minimum guaranteed fixed interest rate
Tax deferral
Designated beneficiary(ies) to avoid probate
Income Later
Annuities can be structured to provide income later in life. This allows you to know exactly what your contractually guaranteed lifetime income payments will be.Also referred to as Longevity Annuities, these simple strategies have no annual fees, and can be deferred as short as 2 years up to as long as 45 years. In exchange for an upfront premium payment, the purchaser receives a monthly income for life that begins after a deferral period.
Features
No annual fees
Income can be deferred as short as 2 years up to 45 years
COLAs (Cost of Living Adjustments) can included
Can be used for lifetime laddering strategies
An Income Riders is an optional benefit that can be attached to an annuity for an additional annual fee. It will provide a lifetime income stream that you can start at a specific time in the future.
Features
Tax-deferred growth during deferral period
Income options, including income for life
Death benefit options
Used to start income payments at at date in the future
Legacy
Legacy planning allows you to maintain control of your beneficiary’s inheritance even after you’re gone. You can have the power to say how or when your annuity assets will be passed on. For example, if your beneficiaries may not know how to manage a lump-sum inheritance. You can tailor different distribution plans for each beneficiary—depending on their age, financial savvy, or other needs.With some insurance companies, you can attach a death benefit rider to your annuity that can be used for legacy planning. These death benefit riders grow and compound year over year, and for a guaranteed period of time. There is no underwriting required and issue is guaranteed.
Features
Annual growth for death benefit
Access to your funds
Can be paid out as lump sum or over a 5 year period
Good alternative to life insurance
Also referred to as Longevity Annuities, these simple strategies have no annual fees, and can be deferred up to as long as 45 years. By naming your child or grandchild as the beneficiary, they can receive lifetime income payments starting at the age you decide.
Provide a lifetime income for your child/grandchild
Grow your legacy gift over the deferment period
Prevent foolish lump-sum spending
Avoid any probate issues
Heirs pay taxes only on the payments
An estate planning strategy that is used to extend the an Individual Retirement Account (IRA) across multiple generations. A stretch IRA allows the original beneficiary of an IRA to distribute assets to a designated second, third, or even fourth generation beneficiary. With this strategy, the IRA can be passed on from generation to generation while your beneficiaries receive tax-deferred and/or tax-free growth as long as possible.
Features
Extend required minimum distribution through multiple generations
Protected from market downturns
Reduces family tax liability upon IRA owner’s death
Listed beneficiaries of the policy are able to take required minimum distributions, instead of lump-sum
When your turn 70½, whether you need the money or not, the IRS will tap you on the shoulder and start making you take money out of your traditional IRA. You can offset these Required Minimum Distributions by implementing a unique and simple strategy.
If you have money in an IRA that you don't plan on needing to live on in retirement. You can take your required minimum distribution (RMD) and reinvest it into an annuity for growth and legacy.
Features
Death benefit rider with fixed index annuity
Annual growth can offset RMD withdrawals
Fixed index annuity structure can protect from market downturns
Death benefit can be paid as lump sum or over 5 years
Disclaimer This information is not intended or written to be used as investing, legal, or tax advice. It was written solely to provide general information and support the sale of annuity products. A taxpayer cannot use it for the purpose of avoiding penalties that may be imposed under the tax laws. You should seek advice on investing, legal, or tax questions based on your particular circumstances from an independent financial professional, attorney, or tax advisor.
