It is no secret that our current Social Security system is in trouble. The percentage of people collecting Social Security is increasing faster then the percentage of people paying into Social Security. Life expectancy is increasing and the average age of our population is getting older. As this inevitable aging trend continues, at some point, the number of people over age 50 will be greater then the number of people under age 50. The fastest growing age group in the world today is the 85 and up population.
Changes must be and will be made to the current Social Security system for our future generations to have any hope of participating. We spend our entire working life paying into Social Security with the intention of taking what we hope is a guaranteed lifetime income when we retire. The future of our Social Security system as we currently know it is doubtful. Clearly, relying solely on Social Security income will most likely leave those unfortunate individuals living at or below poverty levels, throughout their golden years.
Social Security is in reality, a deferred annuity. Simply put, we make deposits into our Social Security account with the intention of taking systematic lifetime income withdrawals at some point in the future.
Fixed annuities have been in existence for well over two hundred years. The very first mention of fixed annuities in the United States was the use of these products by the Presbyterian Church in 1740 to provide income benefits for the clergy and their surviving beneficiaries.
Typically, fixed annuities are an interest-bearing account issued by life insurance companies. A fixed annuity can pay the contract holder an immediate or deferred periodic income, either for a specified time period or for the rest of their life. Interest earnings growth in the annuity is tax-deferred, as long as the interest remains in the policy. All the interest earnings accumulated in the annuity are taxed as ordinary income when distributed. Annuities are often used to augment retirement income by providing the annuity owner a guaranteed lifetime income regardless of how long they live. (If lifetime income option is selected)
Fixed Single Premium Immediate Annuities
Fixed Single Premium Deferred Annuities
Fixed Flexible Premium Deferred Annuities
Fixed Single Premium and Flexible Premium Indexed Annuities
Fixed Single and Flexible Premium Charitable Gift Annuities
Fixed Single Premium Split Dollar and/or Flexible Combination Annuities
All fixed annuities have three primary advantages: tax deferral, avoidance of probate, and a guaranteed income (optional) for a fixed period of time, or income for life. Non-qualified annuities also offer the power of triple compounding!
Interest on Principle + Interest on Interest + Interest on Tax Savings
Fixed Annuities available to consumers today can contractually guarantee the insured a lifetime minimum rate of return on money deposited, guaranteed lifetime income options, and tax deferral during the accumulation phase of the contract in non-qualified plans. (Provided the lifetime income option is selected.)
Bank CD’s, Bonds |
-vs- |
Fixed Annuities |
|
| Guaranteed lifetime income option | No | Yes | |
| Loan privileges | No | Yes | |
| Avoidance of probate costs and delays | No | Yes | |
| Potential Social Security tax advantage | No | Yes | |
| Nursing Home Benefit “Free Withdrawal” | No | Yes | |
| Tax-deferred Growth | No | Yes |
Never purchase any product you don't understand. Be sure you have enough information to make an informed decision before taking action. Ask questions until you are completely satisfied. Any purchase for any product can involve some degree of risk. Understand the risks before you buy. Be sure you understand what you are actually purchasing. Do not allow yourself to be pressured into buying something you are not comfortable with. Not all fixed annuities are alike. If you want to include fixed annuities in your retirement planning, select a plan which will work for you. Work with an independent insurance advisor who specializes in fixed annuities and offers a wide variety of fixed annuity plans with top rated companies. The company you choose when selecting a fixed annuity is just as important as the particular plan you select.
If you select any type of fixed annuity 100% of your money is deposited into your account and earns a minimum guaranteed interest rate. (Each fixed annuity contract is different) The insurance agent selling the fixed annuity is paid a commission by the insurance company issuing the fixed annuity. Many factors determine the percentage of commission paid by the insurance company to the selling agent. You the consumer should receive full disclosure from the agent regarding contingent deferred sales charges connected to any fixed annuity you purchase prior to signing any agreement. Contingent deferred sales charges found in fixed deferred annuity contracts are usually called declining surrender charges. Basically, you are agreeing to deposit your money into the fixed annuity for a specific period of time. If you take lump sum distribution before the time period allowed, which is specified in the contract, you would be subjected to a surrender charge.
Fixed annuities can provide you with contractual guarantees not found anywhere else. Fixed annuities can provide a guaranteed lifetime income. Fixed annuities are not sexy, exciting, or trendy. Fixed annuities have been around a long time. Fixed annuities may or may not be suitable for you. We can help you find out if fixed annuities are right for you!
The future is yours to control. Decisions you make now about how you structure your income and manage your assets will have lasting affects on you and your family. Proper planning is the most important aspect of your pre-retirement preparation. Having a flexible plan which includes guaranteed lifetime income strategies and on-going monitoring of your financial situation will give you the best chance to achieve you long-range goals.
John Rada & Associates offer you the opportunity to review your retirement plans at no charge for your first consultation. If you do not have a plan we can help you build one. We can assist you in determining if fixed annuity’s make sense for you. In addition, if fixed annuities are suitable for you, we can recommend the most appropriate type of fixed annuity plans and other strategies to meet your retirement needs and goals.
Our free independent analysis can help you sort through your options and choices and determine the most suitable course of action based on your individual family situation.