Frequently Asked Questions
Who issues annuities?
Annuities are issued and managed by insurance companies, and sold by licensed insurance agents and independent brokers. These agents and brokers have met additional annuity education requirements and are required to update such training on at least an annual basis.
What's the purpose of an annuity?
Annuities are like having insurance on your retirement. After investing and building your 401(k), IRA, Roth IRA, or other such retirement investment products, you need to look at insuring those funds against market losses during your retirement years.
By moving those funds or some portion of them to an Annuity, it can place a guarantee on the principal against market losses. The annuity can provide a lifetime income stream that you are not capable of outliving. Additionally, you still have the potential to earn interest on the principal.
When should I purchase an annuity?
It depends on your age, status of retirement, savings, and whether you are still contributing to a qualified plan such a 401(k). It’s a balancing act of these situations to determine the best time.
However, if you have maximized contributions to your 401(k) or individual IRA and still have other savings to invest, then an annuity is an excellent option. If you are already retired and are no longer making contributions to a 401(k) or IRA, then it’s a good time to consider utilizing a 1035 exchange to move the funds into an annuity. This strategy will protect the principal from market losses, and can also generate a guaranteed lifetime income stream and death benefit.
There are many other considerations, so it’s best to speak with one of our annuity professionals to gain more understanding. Watch this Annuity Tips video.
Why are annuities good for seniors?
Social Security currently pays less than $1 for each dollar you paid into it (source: Social Security Administration). Additionally, defined benefit pensions are dying away and are seldom offered to those outside the public sector.
Annuities can provide a guaranteed lifetime income to supplement Social Security, but also provide a death benefit to your heirs, and can also help offset additional retirement costs. Forbes has referred to annuities as being the Swiss Army Knife of retirement planning.
What benefits do annuities provide that my 401(k) or IRA cannot?
1. Life expectancy continues to extend longer, so the guaranteed lifetime income stream available on many annuities can protect those who outlive expectations.
2. Death benefit paid to your heirs which is calculated as the remaining balance in the account at your passing. The death benefit can bypass probate and is paid directly to heirs.
3. Health care assistance — for those with a terminal diagnosis or require some type of assisted living, annuity funds can be drawn down surrender-penalty free to help cover these costs.
4. Earnings on annuities are tax-deferred.
Will my annuity lose money when the market declines?
Only Variable Annuities are exposed to market declines. Fixed, Deferred, and SPIAs are not subjected to market losses, as those funds are not directly connected to the market. With a Fixed Index Annuity, the annuitant has the best of both worlds; 1) guarantee on the principal against market loss, and 2) a portion of the upside market gains based on an index tied to the S&P 500. When the market declines, a Fixed Index Annuity holds at zero percent. It’s known as “zero is your hero”.
Are my funds locked up and unable to be accessed with an annuity?
Some, such as Fixed Index Annuities, have liquidity provisions during the surrender charge period. With most annuities, you are allowed as much as a 10% annual withdrawal penalty-free (which can differ with each company). Additionally, under other conditions such as death, surrender fees are usually waived.
How are income payments determined with an annuity?
The way income is paid out is a choice you make. If married, you typically want to choose a joint-survivor option. At the passing of one spouse, the surviving spouse continues to receive a reduced income payment for life. There are other options to consider, and it’s best to review these with your agent, as it depends on your individual situation.
How can my principal be guaranteed with an annuity?
Your money is not directly invested in the market. The insurance company’s investment portfolio is invested heavily in bonds for security and in return you are given a guaranteed rate of return on your principal.
Insurance companies are required by law to retain 1:1 ratio of cash reserves to offset claims payments, which annuities are classified within. This is why it’s important to only work with A-rated carriers, as these companies have the highest performing financial stability and strongest future outlook.