Advantages of Fixed Annuities

Advantages of Fixed Annuities

Advantages of fixed annuities are endless.  Fixed annuities are referred to by many different names:  tax-deferred annuities, CD-type annuities, traditional fixed annuities, bonus annuities, fixed indexed annuities, and equity indexed annuities.  All these types of annuities are similar in nature.  The one thing these annuities have in common is that they are all fixed.  As long you as you hold it until maturity you have no risk of losing any money whatsoever.  There are many advantages to owning fixed annuities, most notably these advantages are:  tax deferred, higher interest rates, safety and guarantees, withdrawal flexibility.

1.  Tax Deferred - During your annuity contract your account will be credited with some amount of interest.  Since the insurance company is crediting your account and not a bank the interest that you earn is deferred until later.  As the owner of the annuity the only time you pay taxes on the interest is when you decide to withdrawal for some other purpose.  People often keep their money in fixed annuities for extended periods of time to avoid taxation on the interest they don’t need.

2.  Higher Interest Rates - Generally fixed annuities are used as an alternative to CD’s and treasury bonds.  One of the main attractions is the higher interest rates.  Since these are contracts with insurance companies and not with banks or the federal government they can afford to pay slightly higher rates than traditional CD’s.  For example today May 18, 2010 the national average for CD’s on www.bankrate.com is 2.12%, while we can offer 3.65% on a comparable 5 year CD type annuity.

3. Safety and Guarantees - The value of your fixed annuity is backed by an insurance company, not a bank or government agency.  This is an important distinction to make when dealing with annuities.  All guarantees are backed by the full faith and credit of the issuing company.  In addition many states have guarantee associations to cover consumers in the event that an insurance company becomes insolvent.

4.  Withdrawal Flexibility - Another key advantage that fixed annuities offer is withdrawal flexibility.  unlike most CD’s that allow you to withdrawal only the interest each year, many fixed annuities offer the ability to withdrawal 10% - 15% per year without any penalty whatsoever. Talk to one of our insurance professionals about the withdrawal flexibility of specific products.

Is a split annuity worth it?  There has been a lot of talk recently on split annuities.  A split annuity is where you take half the money you have to invest and purchase a period certain annuity for 10 years.  Invest teh other half in a fixed or fixed indexed annuity for 10 years.  When the 10 years is up you take the balance from your fixed or fixed indexed annuity and purchase a life annuity with that money.

Why would you do that?  Simple, you make more income over the long term.  Lets suppose that someon is 65 years old and need lifetime income, and suppose they have $500,000 to invest.  If they were to purchase a straight life annuity for $500,000 that guarantees $27,000 per year for ever.  Instead suppose you purchased an annuity for $250,000 that would guarantee payouts for 10 years at $27,000 per year.  You would then invest the other $250,000 into a 10 year fixed annity at 5%.  In 10 years you would have $407,000 to withdrawal.  You would then purchase a life annuity for $407,000 that would provide income for life.  Since you are now 10 years older this annuity might pay $34,000 for the rest of your life.  By splitting your annutiy purchases you can guarantee and increase your monthly income.   Just an idea.  for more information call us at 888-515-7152 or email us at ryan@annuityrateshopper.com

Roth IRA Conversion – The Benefits Most Aren’t Considering?

2010 is an interesting year with the income limits disappearing for the Roth IRA Conversion, meaning anyone can convert their IRA to a Roth and potentially never pay taxes again on that money.

Now to understand the benefits I’m going to talk about you first have to understand when and how you will be paying your taxes.  When you convert an IRA to a Roth IRA in 2010 you will have the option of paying your taxes due on your 2010 tax return or you can take advantage of a 2010 rule allowing you to pay half of them in 2012 with your 2011 tax return and the other half in 2013 on your 2012 tax return;  your choice.  Once you figure out when you will be paying your taxes you next have to figure out how you will be paying your taxes.

Paying these Roth Taxes aren’t as easy as you think.  If you are under the age of 59.5 you cannot just use money from the IRA you are converting because any money withdrawn from an IRA before age 59.5 will have an additional 10% penalty.  You really need to have money in a Non-Qualified (Not an IRA, 401k, 457, or 403b) account available to pay the taxes.  This is where a major benefit occurs.  Most people just look at tax rates now and expected tax rates in retirement to evaluate the benefits of a Roth IRA conversion.  Although that is the most important concept to evaluate when deciding which IRA to contribute to; evaluating a Roth Conversion is a bit more complex.  If you do a Roth conversion and pay the taxes from a non qualified brokerage account you will be getting another benefit as well - no more capital gains tax on the money used to pay the taxes.

If you assume that all your taxable funds were able to take advantage of Long-Term capital gains (best scenario possible) and you live in California making more than $47,055 per year you will pay 24.55 % capital gains (15% for Federal and 9.55% for state).  Once you pay your Roth Conversion taxes you will never pay taxes on this money again.

Let’s look at a 50 year old planning to retire at age 66 (Full Social Security Age) with a $100,000 in an IRA and looking to convert it to a Roth.  Let’s assume their current state and federal income tax bracket is now at 35% and will reduce to 30% in retirement.  For capital gains will assume 24.55% capital gains tax rates.  We will also assume a 7% rate of return.

In this example they will owe $35,000 in taxes this year for the conversion from a traditional IRA to a Roth IRA.  At retirement (age 66) the Roth IRA will be worth $295,216, your IRA would also be worth $295,216 but taxes would be due and would only be worth $206,651 (assuming you paid the taxes at 30%).  To compare apples to apples you would also need to assume you had invested the $35,000 that you didn’t pay taxes with, and earned the same rate of return as your other investments, 7%.  That $35,000 would be worth $103,325.73.  Assuming that all of your gains on that $35,000 investment were taxed at capital gains you would owe (or have paid) $14,721 in taxes.
Now if you compare your options both on an after tax basis you will see that converting your IRA to a Roth IRA would generate an economic benefit of $14,721.  For more information or to receive our Roth IRA calculator please visit www.AnnuityRateShopper.com or call us at (888) 515-7152.

Recently we learned a valuable lesson about stock market returns: what goes up can come down. The financial collapse of 2008 spread through the economy like wildfire. The government’s response has been credited for keeping us out of another Great Depression, but may set up a perfect scenario for inflation.

How can you keep up without taking on risk? Risk is what got us all into this hole in the first place - and for you, it’s personal. You have to plan for retirement, now.

What can a retiree or a soon-to-be-retired person do, to make sure he does not outlive his money?

In normal times, gold and other metals are a hedge against inflation; precious metals usually are sold at a higher price once the currency is inflated - that is, in the absence of a “bubble.” Many analysts talk about a “gold bubble” now, and bubbles burst.

If you’re optimistic about the stock market continuing its rebound, you can “double down,” and hope that market returns outpace inflation.

But how certain are you of that, and for how long? If you are seventy and planning for twenty years of retirement, are you certain that equities will provide you the income you need? If you are 55 and are planning for 35 years’ retirement income, are you certain that 2008 won’t be repeated?

An annuity insulates you against market and inflation risk. An immediate annuity provides a guaranteed payout for the rest of your life, assuming a rate of return above normal inflation. You always earn that rate.

Additionally, your annuity can be indexed to the stock market. But unlike a direct investment in the market, your indexed annuity base payment never decreases. In good years, however, you earn returns indexed to the market, within a limit usually ranging from 8-10%.

With annuities, you are “betting on your own life.” If you “should” need 20 years of income and you stop needing that income in 10 years, you lose; but one’s own personal demise has a way of putting such a loss in perspective. By contrast, if you live 30 years, you win - collecting the same guaranteed lifetime income for much longer. You shift the risk that matters to an insurance company.

To find the annuity product that works best for you, visit annuityrateshopper.com, or call us at 888-515-7152.

Don’t “bet your life.” Bet on it.

Finding the right fixed annuity, equity indexed annuity, immediate annuity, variable annuity or if an annuity is even right for you can be a difficult process.  There are many areas that you want to consider: Estate Planning, Investment Planning, Income Planning, Tax Planning and overall Retirement Planning.  Looking at all of these things together can be a daunting task for insurance brokers as well as just series 7 qualified financial advisors/brokers.  The one designation/degree that trains advisors to see these areas in total is the CFP® or CERTIFIED FINANCIAL PLANNER^TM .

At AnnuityRateShopper.com all advisors carry the CERTIFIED FINANCIAL PLANNER^TM designation.  This means that they are armed with the knowledge to ask you the right questions in order to probe which Annuity (fixed annuity, equity indexed annuity, variable annuity or immediate annuity) may be right for you.  They are also held to the very high ethical standard of the CFP® board of standards. For most people the annuity purchase is not their entire financial plan but one component of it.  The Annuity needs to compliment your other investments such as, Real Estate, CD’s, Mutual Funds, Stocks and Bonds.

At AnnuityRateShopper.com we will help you to find which annuity is right for you, as well as tell you if an annuity is not right for you.  If you do purchase an annuity through us you can rest assured that we work with great companies and have the most competitive rates available.  AnnuityRateShopper.com will be your one-stop-shop for all your annuity needs.