Asset Accumulation &

Income Streategies

 A Tax-Deferred Fixed Annuity is a savings vehicle to accumulate money for future income needs!   
 

History & Concepts:

The basic history and concept of annuities goes back a very long time; back to the year 47 BC and the Roman Empire. They were the inventors of annuity plans and the first society to implement the concept. The average life expectancy in those days was a young and tender age-27, meaning 50% of people lived longer and 50% shorter. The main occupation of young men who were part of the Roman Empire was soldiering as the Romans were the great conquerors of the time and ruled most of the known world of that period. Keep in mind it was a very different world back then. One that we have a hard time imagining today as their were Kings and Queens that were sometimes only 14-years old and people married and started having children at a much younger age than we are accustomed to today.  

This left a very big problem for the Roman Government and it's soldiers. The problem being a large number of widows with lots of fatherless childen with no means of support. This led to the concept and invention of the annuity plan, whereby the Roman Government would take part of the soldiers pay and put it into an interest bearing account for future use, should that soldier not return home. From the accumulated funds in the deceased soldiers account, the money would be used to create a regular income stream for the surviving spouse and children. That way they would not starve and end up being a further burden to the Roman Government. If the soldier was fortunate enough to live a long time, such as to the ripe old age of 30 and retired from military duty, then he could use it to supplement his own retirement. Hence, the Tax-Defered Annuity was born.

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Features and Benefits:

Tax-Deferred Growth: Tax-deferral allows your money to grow faster because you earn interest on dollars that would otherwise be paid as taxes. Your premium earns interest, the interest compounds within the plan and the money you would have paid in taxes earns interest, resulting in triple compounding.

Guarantees: Tax-deferred annuities are backed by the financial strength of the insurance companies that issue the annuity policies. Any well rated insurance company will only invest their funds in high quality bonds with a large percentage in US Treasury notes and bonds. The most prominent independent rating agencies are A. M. Best founded in 1890 and Standard & Poor's. A. M. Best has fifteen rating categories and it is wise to only deal with anuuity companies rated in the top four, which would be A- or better. 

Income Options: After you are done accumulating your funds on a tax-deferred basis you can convert the lump sum in you account into a guaranteed income stream. With most plans you can convert your plan to an income stream anytime after the first year of issue. Most companies offer several payout options such as: Income for a Specified Period, Income for a Specified Amount, Life Income with a Period Certain, Life income and Joint and Survivor Life Income. With non-qualified plans, a portion of each income payment represents a return of premium that is not taxable, thus reducing your tax liability.

Liquidity: Most annuity plans allow you to take penalty-free withdrawals of up to 10% of your Accumulation Value once each contract year after the first aniversary year. Some even let you withdraw penalty-free within the first contract year. Many plans will also increase the 10% penalty-free amount to 20-100% for long term hospital stays or Nursing Home stays longer than 90-days. If your annuity is an IRA, many companies will waive surrender charges for IRS Required Minimum Distributions even if the amount is greater than the usual 10% penalty-free amount. All annuities have surrender charges which will be assesed for any withdrawals over and above the penalty-free amounts, whether they be partial or full surrenders. Check your plan provisions for details as percentages and length of time for surrender charge assesments vary by contract.

Index Allocations: In addtion to standard company fixed interest rate accounts where you know ahead of time what interest rate you will receive in a given year, indexed annuities offer index allocation choices. If you place your premium in these allocations your principal and any previously credited interest will be guaranteed and can not be lost. Your money will never be invested directly into the indexes or any stocks or bonds. The indexes will only be used as a measure of growth to then determine what interest rate you will be credited for the previous year. If the index only goes down, you will receive no interest for that year, but will not lose any money that is already in your plan. This gives the annuity policyholder the potential for enhanced growth without experiencing loss of premium from market fluctuations. Many companies offer varieties of crediting methods and several indexes such as the DOW, S & P 500, S & P 400, Russell 2000 and NASDAQ-100.

Death Benefits & Probate Avoidance: Annuities offer the ability to name beneficiaries, which may minimize the expense, delays and publicity that comes with probate. Your named beneficiary may receive death proceeds as either a lump sum or an income stream. Consult with your own legal advisor regarding tax implications and estate planning advice. 

Disclosure: These are only highlights of the features and benefits that annuity plans can provide. Always review and read your policy contract for exact details and provisions of your annuity plan. Different plans and/or companies will have different provisions and vary by policy contract.