Tag Archive for 'annuity'

Who Should Buy Annuities

Annuities can be a very stable investment vehicle that provides an immediate income stream or deferred tax benefit that wise investors crave. In fact, annuities deliver an easy way to develop retirement accounts that are able to grow tax-free until a withdrawal is made, providing predictable income in the future. Therefore, any investor who is seeking to create a diverse portfolio that accumulates funds and tax-free for future income streams should consider purchasing any number or varieties of annuities.

A prudent among for those planning on retiring or those already in their retirement years, annuities are popular contracts that promise to make periodic payments to the investor for a specific period of time and for a specific level of interest. This level of predictability helps calm fears of market swings. Of course, the amount of those return payments ultimately depend on the amount of money initially invested, the type of annuity chosen, the length of time that has passed, and the performance of the market.

Sold or backed by an insurance company, there are various types of annuities that exist and all with slight variations that may appeal to each investor, depending on his aversion to risk and financial goals. For example, variable annuities allow the investor a little bit of control at where to place his or her money. The investor may elect to place a percentage of that money in a higher risk fund as well as an index or bond fun. Similarly, an investor may elect to place funds in an indexed account of which the performance is tied to the investor.

On the other hand, fixed annuities for example, offer a predetermined rate of return of say 4%. This may be lower than the market growth over several years, but it is enough to keep pace with inflation, and it provides the average investor an opportunity for moderate income growth that is tax free. During the ebb and flow of the market is bound to occur from time to time, those investors who have place some of their earnings in fixed annuities will maintain a steady stream of income and negate much of the financial losses that traditional stocks may experience.

With annuities, the investor can get his funds back when he retires in a percentage that is entirely based on his discretion and on his fluctuating needs from year to year.

Further, he can either elect to be paid out all at once in one lump sum or in installments for period of time, say 10 to 30 years. For example, an investor can, at the age of 65, decided that he will withdrawal 7% a year for the next 25 years from his account. The longer the investor waits to make good on those withdraws, the more percentage or amount he would be able to take each month.

Building retirement income through various annuity accounts can create periodic paychecks that the investor knows will be there for a particular time period. A portfolio with several annuity accounts can all have various distribution or pay days that can supplement other investments the investor has made. With the predictable fluctuations in the market, fixed annuities generate the attention of conservative and frugal investors who would like to foresee a steady and dependable rate of return.

5 Things to Ask Your Annuity Agent

Annuities are investment contracts between the investor and the insurance company, but are often sold by an annuity agent. An annuity agent can be helpful because he or she can offer many different annuities from several different companies that offer you a variety of rates and options than you would otherwise receive from going directly to one company.  To make the most of the relationship with your annuity agent, there are five things you should consider asking:

Is your agent able to sell?

First things first, let’s make sure your agent is legitimate. Most states require your agent to be registered and have a license to sell annuities. If you walk into his or her office or whether your agent comes to you, you should ask if they are licensed to sell annuities in your state. Yes, it could be awkward, but so is losing all of your money to someone who does not know how to invest. Most agents understand that a level of trust needs to be established between the two of you and will not mind showing off their hard-earned license. Making sure your agent understands the basics of what he or she is selling and the laws and regulations is the prudent thing to do for every investor. Working with licensed agent guarantees you further protections.

What kind of commission is your agent making off the transaction?

Agents are also in the business of making money and you should expect that they get a commission for each account that they open. However, you should know what the arrangement is between them and the companies they represent. Understanding what they get with the purchases you make is essential to understand their motives of selling to you. Transparency is essential to all successful business relationships and partnerships. Often, the best deals are had with an independent agent because they have a less chance of being biased towards any one annuity even if it lacks the benefits given by another.

What annuities can they offer you?

Agents are in the business of offering annuities from various companies. You should expect that several different types of annuities coming from various companies can be made available to you. If your agent can only offer you a few annuities from only one company, consider that you may not be getting the best deal. The wider your options, the better decisions you are able to make with regards your investment; knowing the potential growth, the risks involved, and the fees and penalties you may incur based on present or future behavior is essential.

Understand your fees:

An agent should be able to answer all the fees, including penalties, transfer, or withdraw fees for your annuities and explain them to you in an easy way. Often times, an agent will have “surrender fees” which can put you in a pinch when you are interested in switching agents or annuity providers. Often times, these fees drop off or decrease as the years go by. Find out how the percentage the fees decrease per year.

What are the ratings of the insurance company that will issue your annuity?

If your annuity agent is worth his salt, he will be able to tell you the ratings of the insurance company you are making the purchases from. Since, annuities are not back up by the FDIC like the funds in your bank account are. The important thing to remember is that your money is only backed by the health and solvency of the issuing insurance company. Understanding the ratings can give you a better picture at the health of the company and the future of your investment.