Annuities

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Annuities are investment products that have two stages.

1) The accumulation stage where you are putting a lump sum or regular payments towards the annuity with the idea of saving for the future. 

2) The annuitization or payout stage where a regular and guaranteed amount of money is coming for a specific amount of time. 

SPIA’s or Single Premium Immediate Annuities are common retirement tools and are also used often as structured settlements from court cases.  A good example is lifetime payments for the victim of a bad car crash. 

Because of the guaranteed income from a SPIA these are a great supplement to Social Security income.

We specialize in getting you the best annuities possible.

Many people don't know or understand the full options out there, and of course, these options are also changing all the time. 

See below for a full Q&A on Annuities.


Frequently Asked Questions About Annuities

 

1) What are disadvantages of annuities?

Like any financial product there are good and bad traits that must be managed.  In most cases they are one in the same as what is good today may not fit 10 years from now.  With that being said it is critical to work with a team of trusted advisors to make the decision to invest in annuities. 

2) What types of annuities are there?

Annuities can be purchased as fixed, fixed indexed, or variable products. 

3) What are the benefits of a fixed annuity?

A positive of fixed products is that you know what you will have when the policy period is over.  A negative is that because of the guaranteed nature of a fixed product the interest rates are very low and may not keep up with inflation.

4) What are the benefits of a fixed index annuity?

A positive of a fixed index product is that you can never lose principal and can capture higher returns that are locked in year over year.  A negative is higher and longer penalty periods.

5) What are the benefits of a variable annuity?

A positive of variable annuities is that you can capture higher interest rates.  The negative is that you could lose portions or all of your principal.

6) What are annuity fees like?

Fees vary in annuities and should be considered as part of your investigation into purchasing.  Many of these are baked into the products especially with fixed and fixed indexed products and revolve mainly around early withdrawal of funds.

7) How are annuities taxed?

Annuities can be the funding mechanism of ROTH and Traditional IRA’s and will be taxed as such. 

8) Can annuities be purchased in a way that shelters them from annual taxes?

Annuities can also be purchased as non-qualified and allow for tax free growth but will require payment of taxes on the interest earned when the money is taken out.  These are considered retirement products and require those purchasing them to wait until age 59 1/2 before making withdrawls.  Early withdrawls will result in a tax penalty.

9) Are there any tax exclusions associated with annuities?

If your annuity was purchased with future taxable money you will be subject to an exclusion ratio.  This will tell you how much of your income will be taxed vs. not taxed when making withdrawals.

10) Are annuities at market risk?

They could be.  There are Fixed, Fixed Indexed, and Variable.  It’s important to understand when to apply the specific type as it pertains to your overall goal. 

11) Does the insurance company keep my money if I die?

They could.  That’s why it’s important to know your strategy, understand how the product supports it, and review the plan annually.  

12) Do annuities keep up with inflation?

Rarely.  However, as part of a strategy to avoid market loss you have to weigh the risks, especially when you are older.

13) Should I put all of my money in an annuity?

No.  99% of the time that would not be a good strategy and if someone suggests it to you we recommend you get a second opinion.

14) Do annuities avoid probate?

Yes they do.  Proceeds go direct to your named beneficiary. 

15) Do annuities avoid Medicaid spend downs?

No they do not.  They can be held by an irrevocable trust as part of a strategy but as a stand alone product they do not. 

16) Can I hold an annuity as a tax qualified investment?

Yes.  Annuities can be part of ROTH and Traditional IRA’s to take advantage of the benefits they offer.

17) Can payouts be set up to pay at specific intervals?

Yes.  For Single Premium Immediate Annuities for income you can choose monthly, Quarterly, Semi-Annual, and Annual. 

18) Can SPIA’s be used to fund other strategies in a portfolio?

Yes.  They are great tools for funding life/long term care hybrid products. 

19) How do we find out more and what may work well for us?

Talk to your local Parr Insurance Agent today!

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