WHYyou should consider one of the 4 Annuities.
Annuity is a financial product which is sold by lifeinsurance companies to help you generate a fixed regular income forthe rest of your life. So let me explain how this works. You pay alump sum amount to the insurance company say hundred thousanddollars, in return the insurance company will pay you let's sayaround seventy thousand dollars every year for the rest of your life.Off course you can choose to take the seventy thousand on a monthly,quarterly, half-yearly or on an annual basis.
At abroader level there are two types of annuities, immediate anddiffered. In immediate annuity plans an individual needs to invest alump sum amount in the insurance plan, and he would immediately startgetting a fixed return at regular intervals and he does not need towait for a retirement. In case of deferred annuity plans individualneeds to invest a fixed amount regularly and the payment would nothappen immediately, the amount would be accumulated till hisretirement and would be paid out at a later date.
The waysit would be paid out depends upon his annuity plan, again there aretwo types; guaranteed annuity and variable annuity. In case ofguaranteed annuity there is a fixed rate of interest paid out for theannuity period. In case of variable annuity the returns depend uponthe returns of the underlying assets. You have a choice to choosefrom a conservative, moderate and an aggressive portfolio based uponthe payout options.
Let’shave a look at different kind of annuity plans
SPIA (single premium Index annuity)
FIA( fixed index annuity)
Fixed Annuity
Variable Annuity
SPIA(single premium Index annuity)
What is aSPIA? It is a single premium immediate annuity. Single premium meansyou're only going to put money in one time and it's going to generatesome kind of immediate income right away, and really this is whatmost consumers think of when they hear the word annuity. It's thatincome stream that starts right away and it goes for a certain amountof time.
FixedIndex Annuity
Tounderstand fixed index annuity, let’stake example of Apple stocks. I think everybody would agree that itis a fantastic company; however you would probably agree with me thatyou don't want to have all of your money invested in Apple stock!Well same thing with an annuity, an annuity can be a fantasticinvestment tool or savings vehicle if used properly in acomprehensive income plan.
Infixed index annuities you know you don't lose money when the marketdeclines and you you'll make money when the market goes up. Solooking at that, if the market goes down your fixed indexed annuityaccount value stays the same if the market goes up your account valuegoes up. Well there are two catches to that number, one if theinsurance company is giving a guarantee that you don't lose money onthe downside, well on the upside you don't
geta hundred percent of the upside as well, so there's going to be a capor a participation rate often times where you may only receivepercent of the upside of the market potential, so that's one of thedisadvantages and for many people in retirement they're not so muchwith concerned with continuing to grow their portfolio as they arewith protecting it. These products aren't designed to competedirectly with investment products where you're invested directly.
Theother potential disadvantage is the fact that there's a holdingperiod or surrender charge period so that the money essentially islocked up for a period of time, now that period of time can beanywhere from five to ten fifteen years.
FixedAnnuity and Variable Annuity
Simplya variable annuity is a security product, the actual value of thepolicy rises and falls directly based on the returns of the subaccounts or mutual funds inside the policy, on the other hand thefixed annuity is an insurance product that guarantees the value ofthe policy can never go down based on market performance.
So manytimes the clients will bring in a variable annuity into my office forme to review and for some reason many people misunderstand exactlywhat they bought so I hear the same story over and over again, ‘mybroker told me I can't lose any money’,‘I'mguaranteed to get X amount of growth every year’and ‘I'mnot aware of the fees inside my policy’.
Nowwhat I like to do is call the insurance company directly on thespeakerphone and let the client listen in while I ask some questions.I ask the insurance company can this policy go up in value and alsogo down in value? How much is the client really paying in fees?
Andwhat we find is most of these policies charge was called themortality and expense fee but they also have the administration fee,to have the fee on the income Rider they have the fee on the subaccount and there's also fee on the death benefit. By the time we addup all the fees the totals can range between three and five percentand what that means to the client is that he or she must earn thatamount per year in order just to break even, obviously in a downmarket that could be very difficult to achieve.
Therealso seems to be a big misunderstanding concerning their incomeRider. What they hear is they're going to earn for example 6% everyyear forever in their account and that the value cannot go down butin reality because it is a variable annuity the account value willchange based on market returns.
Now myopinion for most retirees a much safer way to invest for guaranteedincome for life would be in a fixed indexed annuity with a goodincome rider. Now obviously the main difference is that a fixedannuity guarantees that the clients premium will never go down,indexed annuities also offer income riders that are many times morecompetitive than those found on the variable annuities. These ridersdo have charges favor which can range between a half a percent to onepercent, but the guarantees on these riders range between five to tenpercent growth per year, based on which insurance company the clientchooses.
Soyou see there are lots of questions to be answered, terms to beunderstood and pitfalls to avoid. And that’swhy it's critically important that you work with a professionalfinancial advisor who's accustomed to designing income plans andcreating an income plan that provides a guaranteed income but stillleaves you plenty of reserve money for emergencies that come upthroughout life.
Time to get a Annuity and don't lose your Retirement this time with this Market unstability.
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