Learn the types of annuities, variable and fixed annuity, and get a free quote online. Compare annuities to 401k and IRA retirement plans.
Did
You Know??? Annuities offer a powerful combination of tax deferral, investment options and safety, and are a valuable part of your retirement plan.
Annuities allow the investor to combine tax deferred investing with some loss protection. An annuity has the ability to convert money into an income stream either guaranteed for life, the life of you and your spouse, or for a specific period of time.
Annuities are retirement savings vehicles. Earnings within an annuity grow tax-deferred until retirement age. You can change annuities or switch the investments within your annuity without incurring a taxable gain. If you withdraw money prior to age 59 1/2 you'll owe a 10% tax penalty on the earnings in addition to any income taxes that are due.
Annuities don't have annual contribution limits. Save as much as you wish and make either a lump-sum investment or scheduled contributions. This helps you save additional tax sheltered money after you have maximized your employer's retirement plan and other IRA plans.
Another advantage variable annuities offer is protection for beneficiaries. If you die before receiving income, your beneficiaries will receive, at minimum, the amount you paid into the annuity. Many contracts offer step up benefits where investment gains are locked in regularly so your beneficiaries will receive the higher of either your original investment or the gain as of that lock-in date, even if the value has dropped back down at the time of death. With a mutual fund; however, your beneficiaries inherit only what your account is worth at the time of death, even if it’s less than the amount you invested.
Annuity Information:
An annuity is an investment type insurance product of different types and many have steep fees and hard to understand restrictions.
Some annuities charge as much as 8 percent if you pull out money in the first year or two, with commissions as high as 10 percent for the agent selling the annuity. However, annuities hold a rightful place in some investment portfolios when chosen carefully.
Fixed, Variable and Equity-Indexed Annuities: Fixed annuities offer a set rate of return. Variable annuities' return is based on the performance of investments in the annuity's portfolio. Equity-indexed annuities typically offer a blend of both: A minimum fixed rate of return plus a variable rate based on the return of a particular stock index. This gives you a guaranteed return, combined with a chance to capture the index's market gains. But know that your return may be capped at less than the index's performance.
You can buy fixed or variable annuities that are deferred - that is, you're putting money aside for a future date - or you can buy fixed or variable annuities that are "immediate," where the insurance company turns your lump sum into a monthly income stream.
That monthly payout is a valuable tool to ensure a guaranteed level of income through retirement, but annuitizing your money generally means giving up control of that lump sum.
Many annuity products now offer a variety of add-on features, such as a guaranteed monthly income stream without annuitizing while keeping control of your money. But these features cost extra.
There's an estimated $1.3 trillion in net assets in variable annuities alone. Probably some of those investors would be better off investing directly in the mutual funds they're buying through those annuities. Variable annuities charge annual expenses of 2.37 percent on average, according to investment researcher Morningstar Inc.
Still, Vanguard Group and Charles Schwab & Co. are among the biggest firms selling low-fee annuities, and some products have no early-surrender charges.
Of the various annuity types, immediate income annuities are most likely to get financial planners' thumbs-up, because they may well serve a conservative investor who lacks a traditional pension.
But financial planners disagree when it comes to deferred annuities.
One benefit is tax-deferral on gains, but your retirement account already offers this perk - and it's probably much cheaper. Consider maxing out your retirement accounts before buying a deferred annuity. If you're already at that point, deferred annuities can be attractive since they don't have contribution limits.
Also, annuities offer appealing guarantees. For instance, some guaranteed payouts (those that don't require annuitization) are based on a percentage of your investment, say, 5 percent. If the account grows over time due to market gains, you'll receive the same preset percentage payout, but based on a higher amount. Annuities' guaranteed death benefits also appeal to many investors.
Fees and restrictions
Annuities' annual expenses vary widely. Find out how much you'll shell out each year, and assess whether those fees are worth the benefits. Also, find out what you'll pay if you need your money before the surrender period is finished. Remember that deferred annuities are long-term investments with surrender charges as high as 8 percent on early withdrawals.
Teaser rates
Confirm the rate of return the insurance company is promising, and for how long. For instance, a fixed annuity's guaranteed rate may decline after an introductory period.
Also, the insurer must be financially sound enough to pay benefits over many decades. Check the company's standing with ratings firms such as Standard & Poor's, Moody's Investors Service and A.M. Best.
Tax benefits vs. costs
You'll pay ordinary income tax on payouts from your annuity, unlike the more favorable long-term capital gains rate you'll pay on a regular mutual fund. One perk: Unlike IRAs, you don't have to take withdrawals starting at age 70½. But annuity owners face a tax hit for withdrawals before age 59½.
Inflation crunch
Even though guaranteed income is a major benefit of annuities, that income stream might not look so attractive once inflation takes its toll. You'll likely pay extra for inflation protection, but it's probably worth it.
Obtuse contracts
Planners say annuities are "sold, not bought." Turn that around by comparing products. Given the complexity of these contracts, have an independent financial adviser assess the details before you get locked in.
But don't let an adviser switch you into a "new and improved" annuity. If you haven't yet completed your surrender period, you'll likely pay steep surrender charges, plus start the clock ticking on a new surrender period. Still, a switch might be acceptable if you move into an annuity with much lower annual expenses and better benefits. Make sure your agent makes the switch through a valid Section 1035 exchange to avoid a tax hit.
Personal
Credit
Personal credit scores are based on
standards of the major credit rating bureaus: Experian, Equifax, and TransUnion. Lenders average the fixed score from each of these to determine a borrower’s eligibility and terms of financing.
The rating system looks at several factors and gives a points rating to each one.
Positive and negative factors can affect the score.
Factors
that can affect credit scores:
* Payment
history accounts for about 35% and the way debts are paid, for example if they
are paid in a timely manner or paid late. It reflects the number of past due items
and how long they were
delinquent, or if there was any collection activity. Another factor is any public records
like bankruptcies, liens, and wage garnishments.
* Current
total debts accounts for around 30% and considers the total amount of debts owed.
This is the number of accounts and each balance owed and it influences FICO
scores. Credit bureaus will
look at outstanding debts in relation to the available credit. Getting
out of debt by paying down debts can help raise scores over time.
*
The length of credit history is a factor concerning the amount of time accounts have been
open and the account activity.
* New
credit is any recent accounts established. This also includes any credit inquiries
indicating attempts to get new lines of credit.
* Types of
credit considered is the total number of the types of credit that has been
secured. This includes revolving debt on credit cards and retail accounts.
Some
lenders may not view past performance as a guarantee of future performance. This
is not always true as a credit rating is an indicator of past borrowing and repayment
performance.
This
can give lenders an idea of how likely it will be for a borrower to repay a new loan in full,
on time. They use a consumer's credit rating to determine their risk in loaning money.
A
person who has a good credit rating may not have to pay high interest fees or
may not have to give a large down payment. Personal credit scores are used to determine whether to loan
money to small businesses and corporations. Factors like age, race, ethnic background, religion, sex, and marital status, do not influence
scores. Employment history, current employment, wages, and assets are not taken into consideration as part of
FICO scores, yet some lenders may look at these areas when evaluating a person's
credit worthiness.
Qualified borrowers have a FICO rating of 750 or
better, yet people with a score of 650 may be able to get a loan that has higher
interest rates. These scores can change monthly to reflect any changes to the criteria used to determine the score.
If a loan is paid off it could improve scores. If a bill is not paid or bankruptcy
is filed, it could lower scores. Monitoring scores can help identify any problems
that may need correcting. AnnualCreditReport.com is the site to visit to request a free credit report,
and get credit information almost immediately, but it can take longer when not
using the Internet. Credit services can help monitor FICO scores but it usually
requires a monthly fee.
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Tip of the Day: To curb credit card charges, wrap your credit card in a sheet of paper and keep a log of purchases written on the paper, with a grand total of charges in view each time you reach for your card. Before swiping your card, figure out how many hours you'll have to work in order to payoff the charge and jot on the paper: "IOU #Hours of Work". Perhaps seeing how long you'll need to work to payoff the charge will help curb spending.
