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SPECIAL OFFER WHILE SUPPLIES LAST!!!
Come see us for a stress-free consultation and receive a free book entitled:
The Real Truth about Annuities by Steven Lewitt and Matthew Tarkenton
Deferred Annuity:
A vehicle in which to save money tax deferred. Interest received is kept in the annuity and
is compounded tax deferred year after year to escalate savings. Sometimes your taxes
may be lower because you do not receive a 1099 with an annuity. Taxes are paid on
earnings only when the money is withdrawn. Surrender fees may apply for early withdrawal.
IRS penalty for withdrawal before age 59 1/2. Contact us for today's fixed interest rates.
Annuities are not for everyone. Consult with your advisor to see if they are right for you.
Indexed Annuities:
A fixed annuity that pays interest linked to a stock market index. It is not a direct investment
in an index or the stock market.
What are the advantages?:
Your annuity is credited, usually annually, with the gains received based on the rise in the
index and the caps in your contract. You will never be credited with a negative amount.
Some products offer bonuses from 1-10%. Growth is tax deferred, you do not pay taxes on
the earnings until you start taking the money out. This eliminates the yearly 1099.
What are the disadvantages?:
There are substantial surrender charges if you cancel your contract with the insurance
company prior to its ending. Some contracts are for 5 years, 7 years, 10 years and 12
years or more. As a rule of thumb, the larger the bonus, the higher the caps, the longer the
contract. It makes sense that the insurance company has to have time to earn back the
bonus they gave you up front.
REAL LIFE EXAMPLE of an Index Annuity:
Client "Joe" bought an annuity contract from an A rated insurance carrier in Sept 2004.
Below is a page from his statement explaining how much his account was credited in Sept
2005 and how it was calculated. The crediting method used in his contract is monthly point-
to-point with a 3.30% cap. What does that mean? It means that the maximum he can be
"credited" in any one month is 3.3%. Amounts are not really "credited" each month, but are
added together and credited at the end of the year, and then, if and only if the number is
POSITIVE. Joe understands that the caps may limit his gains on the up side, but he is
willing to exchange this for receiving no negative crediting at the end of the year.
Positive and negative amounts are added to create the year end total. See the table below.
Here is a chart from his Sept 2005 statement, the one year anniversary from purchase:
The 2nd column shows that the S&P 500 gained 10.14% between Sept 2004-Sept 2005,
the first year that Joe had his annuity contract. The 3rd column shows that Joe's gain is
7.84%. Joe's account was credited 7.84% of $550,000 or $43,120.
Joe's gain is LOCKED IN. Joe received slightly less gains than the S&P 500, but without
risk of any negative losses, and his gains are locked in every year meaning his account can
never go below his new balance of $593,120 unless he makes withdrawals or cancels his
contract.
What would have happened if the numbers had added up to a negative number, say -12%?
Nothing! Joe's account would remain the same at $550,000.
Here is where you have to ask yourself:
In the example: Joe's contract is 5 years minimum deferred. That means that Joe has to
wait 5 years before he can turn his money into a stream of income, if he ever chooses to do
so. (most people do not)
After the first year Joe can take penalty-free withdrawals. Since this is an IRA, he can
take his Required Minimum Distributions (RMDs) every year, or 10% of his initial premium
up to 50% of his initial premium (what he paid in) without any penalties. Always read the
company literature for the exact restrictions for your annuity.
Income Requirement in this example: If he chooses to, after 5 years Joe can turn his
annuity into a stream of income that must last at least 10 years. Most people just continue
to take penalty free withdrawals or RMDs, then pass it on to their heirs.
Walkaway Annuities: Many annuities do not require that you generate income. Some are
what the industry calls "walk-aways". 5-7-10 year "walk aways" mean that after the stated
time period there are no penalties to take your money elsewhere.
Annuities in general: As you can see, Annuities can get quite complicated. There are
many different annuities with different crediting options, caps and rates. Please consult your
advisor for which one is best for your situation. Review any documentation from the
insurance carrier carefully. Lastly, get advice from an advisor you can trust, and make sure
they tell you all the NEGATIVES as well as the POSITIVES. If it sounds too good to be true,
it probably is!
Come see us for a stress-free consultation and receive a free book entitled:
The Real Truth about Annuities by Steven Lewitt and Matthew Tarkenton
Deferred Annuity:
A vehicle in which to save money tax deferred. Interest received is kept in the annuity and
is compounded tax deferred year after year to escalate savings. Sometimes your taxes
may be lower because you do not receive a 1099 with an annuity. Taxes are paid on
earnings only when the money is withdrawn. Surrender fees may apply for early withdrawal.
IRS penalty for withdrawal before age 59 1/2. Contact us for today's fixed interest rates.
Annuities are not for everyone. Consult with your advisor to see if they are right for you.
Indexed Annuities:
A fixed annuity that pays interest linked to a stock market index. It is not a direct investment
in an index or the stock market.
What are the advantages?:
Your annuity is credited, usually annually, with the gains received based on the rise in the
index and the caps in your contract. You will never be credited with a negative amount.
Some products offer bonuses from 1-10%. Growth is tax deferred, you do not pay taxes on
the earnings until you start taking the money out. This eliminates the yearly 1099.
What are the disadvantages?:
There are substantial surrender charges if you cancel your contract with the insurance
company prior to its ending. Some contracts are for 5 years, 7 years, 10 years and 12
years or more. As a rule of thumb, the larger the bonus, the higher the caps, the longer the
contract. It makes sense that the insurance company has to have time to earn back the
bonus they gave you up front.
REAL LIFE EXAMPLE of an Index Annuity:
Client "Joe" bought an annuity contract from an A rated insurance carrier in Sept 2004.
- Contract Premium: $500,000
- Bonus: 10%
- Immediate new balance in account Sept 2004: $550,000
Below is a page from his statement explaining how much his account was credited in Sept
2005 and how it was calculated. The crediting method used in his contract is monthly point-
to-point with a 3.30% cap. What does that mean? It means that the maximum he can be
"credited" in any one month is 3.3%. Amounts are not really "credited" each month, but are
added together and credited at the end of the year, and then, if and only if the number is
POSITIVE. Joe understands that the caps may limit his gains on the up side, but he is
willing to exchange this for receiving no negative crediting at the end of the year.
Positive and negative amounts are added to create the year end total. See the table below.
Here is a chart from his Sept 2005 statement, the one year anniversary from purchase:
The 2nd column shows that the S&P 500 gained 10.14% between Sept 2004-Sept 2005,
the first year that Joe had his annuity contract. The 3rd column shows that Joe's gain is
7.84%. Joe's account was credited 7.84% of $550,000 or $43,120.
Joe's gain is LOCKED IN. Joe received slightly less gains than the S&P 500, but without
risk of any negative losses, and his gains are locked in every year meaning his account can
never go below his new balance of $593,120 unless he makes withdrawals or cancels his
contract.
What would have happened if the numbers had added up to a negative number, say -12%?
Nothing! Joe's account would remain the same at $550,000.
Here is where you have to ask yourself:
- Am I willing to give up some GAIN in order to be protected on the down side and
receive no negative credits to my account?
- Also - Am I willing to stick with this plan for the duration of the contract?
In the example: Joe's contract is 5 years minimum deferred. That means that Joe has to
wait 5 years before he can turn his money into a stream of income, if he ever chooses to do
so. (most people do not)
After the first year Joe can take penalty-free withdrawals. Since this is an IRA, he can
take his Required Minimum Distributions (RMDs) every year, or 10% of his initial premium
up to 50% of his initial premium (what he paid in) without any penalties. Always read the
company literature for the exact restrictions for your annuity.
Income Requirement in this example: If he chooses to, after 5 years Joe can turn his
annuity into a stream of income that must last at least 10 years. Most people just continue
to take penalty free withdrawals or RMDs, then pass it on to their heirs.
Walkaway Annuities: Many annuities do not require that you generate income. Some are
what the industry calls "walk-aways". 5-7-10 year "walk aways" mean that after the stated
time period there are no penalties to take your money elsewhere.
Annuities in general: As you can see, Annuities can get quite complicated. There are
many different annuities with different crediting options, caps and rates. Please consult your
advisor for which one is best for your situation. Review any documentation from the
insurance carrier carefully. Lastly, get advice from an advisor you can trust, and make sure
they tell you all the NEGATIVES as well as the POSITIVES. If it sounds too good to be true,
it probably is!
Vital Plan, Inc.
Annuities
The above is not intended as legal, tax or financial advice. Please contact an advisor for guidance for your personal situation.
Contents subject to change. Every attempt has been made for accuracy, however, we are not responsible for errors in text.
Contents subject to change. Every attempt has been made for accuracy, however, we are not responsible for errors in text.
Shelly Ballard
Tarkenton Financial Representative
St. Petersburg, FL
Cell: 727-417-6107
shelly@vitalplan.com
Tarkenton Financial Representative
St. Petersburg, FL
Cell: 727-417-6107
shelly@vitalplan.com
Copyright 2008, Vital Plan, Inc. All Rights Reserved
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