In its most general sense, an annuity is an agreement for one person or organization to pay another a stream or series of payments. Usually the term “annuity” relates to a contract between you and a life insurance company, but a charity or a trust can take the place of the insurance company. There are many categories of annuities. They can be classified by: Nature of the underlying investment – fixed or variable Primary purpose – accumulation or pay-out (deferred or immediate) Nature of pay-out commitment – fixed period, fixed amount, or lifetime Tax status – qualified or nonqualified Premium payment arrangement – single premium or flexible premium An annuity can be classified in several of these categories at once. For example, you might buy a nonqualified single premium deferred variable annuity. For brief definitions of these categories, click here. In general, annuities have the following attractive features: Tax deferral on investment earnings Many investments are taxed year by year, but the investment earnings—capital gains and investment income—in annuities aren’t taxable until you withdraw money. This tax deferral is also true of 401(k)s and IRAs; however, unlike these products, there are no limits on the amount you can put into an annuity. Moreover, the minimum withdrawal requirements for annuities are much more liberal than they are for 401(k)s and IRAs. Protection from creditors If you own an immediate annuity (that is, you are receiving money from an insurance company), generally the most that creditors can access is the payments as they’re made, since the money you gave the insurance company now belongs to the company. Some state statutes and court decisions also protect some or all of the payments from those annuities. And your money in tax-favored retirement plans, such as IRAs and 401(k)s, are generally protected, whether invested in an annuity or not. An array of investment options, including “floors” Many annuity companies offer a variety of investment options. You can invest in a fixed annuity which would credit a specified interest rate, similar to a bank Certificate of Deposit (CD). If you buy a variable annuity, your money can be invested in stock or bond (or other) mutual funds. In recent years, annuity companies have created various types of “floors” that limit the extent of investment decline from an increasing reference point. For example, the annuity may offer a feature that guarantees your investment will never fall below its value on its most recent policy anniversary. Tax-free transfers among investment options In contrast to mutual funds and other investments made with “after-tax money,” with annuities there are no tax consequences if you change how your funds are invested. This can be particularly valuable if you are using a strategy called “rebalancing,” which is recommended by many financial advisors. Under rebalancing, you shift your investments periodically to return them to the proportions that you determine represent the risk/return combination most appropriate for your situation. Lifetime income A lifetime immediate annuity converts an investment into a stream of payments that last as long as you do. In concept, the payments come from three “pockets”: Your investment, investment earnings and money from a pool of people in your group who do not live as long as actuarial tables forecast. It’s the pooling that’s unique to annuities, and it’s what enables annuity companies to be able to guarantee you a lifetime income. Benefits to your heirs There is a common misconception about annuities that goes like this: if you start an immediate lifetime annuity and die soon after that, the insurance company keeps all of your investment in the annuity. That can happen, but it doesn’t have to. To prevent it, buy a “guaranteed period” with the immediate annuity. A guaranteed period commits the insurance company to continue payments after you die to one or more beneficiaries you designate; the payments continue to the end of the stated guaranteed period—usually 10 or 20 years (measured from when you started receiving the annuity payments). Moreover, annuity benefits that pass to beneficiaries don’t go through probate and aren’t governed by your will. The volatility of the equity markets during the second half of 2008 was unprecedented. On October 9, 2007 the Dow Jones Industrial Average closed at 14,164. On October 10, 2008, it closed at 8,451, down 40 percent from one year earlier.    Today, more than any previous market decline, the protection from market downturns will be what motivates consumers to fly to annuities.   Consumers have been reacquainted with what market risk really means – the potential for big losses piling up in a hurry. They are concerned with the riskiness of investing going forward and they are looking for a safe haven.    Annuity products provide attractive interest rates, and guaranteed factors that provide the typical consumer decent growth potential, and a reasonable assurance of safety, all in one simple package.   My company is an independent financial services firm that offers the most competitive products from over 20 of the highest-rated institutions available.  Our best rate today is 6% guaranteed for 6 years for funds over $100,000 and 5.9% Guaranteed for 6 years for funds under $100,000.   We offer an efficient and positive solution that creates good customer experiences while providing consumers a quick way to obtain product information.  Our independence allows us to focus our full attention on your needs and your interests. We can assist you while remaining completely unbiased and objective in our recommendations   Every client is unique.  Our products offer security, flexibility, growth potential, and income options. However, there is not a single product that meets the needs and wants of everyone.  Once I understand your individual goals, I can offer you options for a realistic plan to meet your needs.   An annuity is a contract issued by an insurance company. It is a unique financial product that provides tax deferral of interest and capital gains and the option (if funds are annuitized) of a guaranteed monthly income for life. Although annuities can serve various needs, the primary purpose of an annuity is that of a retirement vehicle for the annuitant, the person who will usually receive the annuity benefits.  Annuities Annuities are a popular, tax-deferred investment vehicle for those in or near retirement (typically ages 50 to 85) who are looking for: A way to save and accumulate money for future needs Flexible income benefit options - helping hedge the risk of living too long and outliving your income Protection against living too long and outliving assets Tax-deferred growth opportunities Guaranteed death benefits How an annuity works Whether you're starting to invest for retirement, or rolling old retirement accounts into a Rollover account IRA you decide up-front how long you'll be investing. When it's time to start receiving payments, you select how and when you receive them.  Which Annuity is Right for You? CCI Underwriters, Inc has a complete portfolio of annuity products to meet the various needs of our clients.   Depending on your current financial situations, retirement goals and income needs, you'll need to determine if an immediate annuity or a deferred annuity is right for you. The annuity is an attractive retirement vehicle because the money accumulating in an annuity grows on a tax deferred basis. There are two parts to an annuity: the accumulation phase and the distribution phase.  After accumulating money in an annuity it is not mandatory that the annuitant exercise the annuitization option and relinquish control of his or her cash value and enter into the annuity distribution phase, the annuitant can simply cash out of his or her annuity. As Financial Giants stumbled on Wall Street in Mid-September, investors are asking about the safety of their annuities. People have nothing to fear!  Although annuities are not protected by Federal Guarantees; they are covered by the states.  Each state has a guarantee company that pays claims of insolvent insurance firms up to a cap that is $100,000 at its lowest.  The Accumulation Phase Features: During the accumulation phase, the fund grows tax deferred; it does not grow tax free. If the annuity was not purchased as part of a qualified retirement program such as an IRA, 401(k), TSA, or 457 plans, income taxes are paid on the earnings when money is ultimately paid out. If the annuity is part of a qualified plan the entire fund is subject to income taxes as it is withdrawn. Surrender charges for early withdrawals. Most offer partial withdrawals free of surrender charges. If you withdraw money from your annuity before age 59 ½ it is called a “premature distribution” and is subject to an additional 10% IRS penalty. If a premature death should occur, the accumulated funds within the annuity are transferred to the named beneficiary, avoiding probate costs.  Annuities can vary by payment mode and are available as “single premium”(purchased with one-time payment) or “flexible premium” (purchased with recurring periodic payments). They also vary by timing of the annuity income and may be available as a “deferred annuity” (which means that annuity income payments are deferred until later) or as an“immediate annuity” (which means that annuity income starts immediately)  For fixed and equity indexed annuities there is safety of principal and earnings. Variable products are subject to mortality and expense charges and administrative fees not typically found with other investments. Types ·         Fixed annuities ·         Variable annuities ·         Equity Indexed annuities   Fixed Annuities In a fixed annuity, the insurance carrier: ·         Declares a current rate of interest for a specified time period. Once the time expires the company will set a new rate which may be higher or lower than the original rate. ·         Guarantees a minimum interest rate of return which is specified in the contract and at no time may the current or renewal interest rate fall below it. ·         Guarantees the principal.   Variable Annuities A variable annuity has two types of accounts: Fixed Accounts In a fixed account, principal and interest are guaranteed by the insurance company. Interest rates are usually guaranteed for one year but can be longer. Variable Accounts ·         In a variable account, the annuity owner bears the investment risk. Policy values vary directly with market performance and may result in a loss of principal and prior earnings. Earnings are tied directly to the performance of various underlying investment vehicles which are available within the variable annuity and are selected by the owner. ·         Variable annuities offer a guarantee that in the event of death the beneficiary will receive at least all the premiums paid less any withdrawals made no matter what the value of the account. This means if the account fund is valued less than the original investment, the beneficiary will receive the original investment.   * Equity Indexed Annuities An Equity-Indexed Annuity (EIA) has interest rates that are linked to growth in the equity market as measured by an index such as the S&P 500. The EIA owner enjoys the upside potential of equities but is not exposed to downside risk. Subject to fixed minimum guarantees, the value of an EIA can only increase due to market growth – it will never decline due to market movement.  There are many variations in product design. No two of the EIAs are exactly alike, and some are very different from each other. However, all the various types fall into three general categories: annual reset, point-to-point, and annual high-water mark with look-back. The following is a simple definition of each. Please call us if you would like to know more. Annual Reset – Also known as the annual ratchet design, the annual reset design resets the starting index point annually. It also credits index increases (interest) annually and compounds annually.  Point-to-Point – The point-to-point design measures the change in the index from the start of the term to the end of the term.  Annual High-Water Mark with Look-Back– The annual high-water mark with look-back can be viewed as a variation on the point-to-point design, except that it measures the index from the start of the term to the highest anniversary value over the term.  * Some annuities allow the insurance company to change participation rates, cap rates or spread/asset/margin fees either annual or at the start of the next contract term.  If an insurance company subsequently lowers the participation rate or cap rate or increases the fees, this could adversely affect an investor's return. Therefore, a prospective investor must carefully review his or her contract in order to examine these issues.  No index interest strategy credits higher interest each and every year.  The best index interest crediting strategy for any given year depends on the performance of the index itself during the contract year.   Annual point-to-point strategies perform better in a rising market, whereas annual monthly average strategies do better in volatile and declining markets.   Uncapped participation rates generally perform better in a moderately rising market, but miss out on the upside when the market increase is significant.  Monthly point-to-point strategies perform better in rising markets, but are susceptible to volatility because monthly gains are capped, but monthly losses are not.  One or two bad months can wipe out the gains for entire year.  How do individuals make decisions about the future and why is that important to investment strategies?   Individuals intuitively look to past experiences to make judgments about the future.  Unfortunately, the human tendency is to place more importance on recent events and experiences and ignore or discount past event experiences leading to unwise and faulty assessments and poor decision making.  Focusing on recent past also causes individuals to chase last year's best performing index interest strategy instead of a more grounded approach of diversification among strategies.   So unless you can predict how the market will perform with certainty, it is best to allocate over at least 2 or more index interest strategies and take time to reallocate on anniversaries after conducting a annual review. Withdrawal ·         Withdrawals may be made at any time. However, the withdrawal may be subject surrender charges and if done before age 59 ½ there will be a 10% IRS penalty. Some contracts allow an annual 10% withdrawal free of surrender charges. ·         The owner may pre-authorize a systematic periodic withdrawal plan. The owner of the contract instructs the company to withdraw a percentage or a level dollar amount from the contract on a monthly, quarterly, semiannual, or annual basis.  The Distribution Phase         As part of the distribution phase, the owner has two options, he or she can withdraw money (either in a lump sum or elect a systematic withdrawal plan) or annuitize (purchase an annuity pay out plan). Annuitization When the owner annuitizes the funds he or she purchases an annuity pay out plan. In a Fixed and in an Equity Indexed Annuity the owner purchases a monthly income that will be paid to him or her until death. It is a guaranteed income that will not change. In a variable annuity, the owner has an option to do the same or transfer all or part of the contract to one or more of the sub-accounts that are available, and annuitize those funds.  The funds that are annuitized in the separate accounts produce an income that will change from month to month based on the performance of the sub-account that the funds are placed in. Annuity Pay Out Plans Life Only- Periodic monthly payments to an annuitant for the duration of his or her lifetime and then ceases. It is for a lifetime, the annuitant cannot outlive the payments. The payments are determined at the time of purchase and are based on age and sex. Life with 10 years certain– Payments will be made for at least ten years, regardless if the annuitant lives for the entire ten years. If the annuitant dies during the ten-year period the remainder of the ten-year payments will be made to a beneficiary. If the annuitant lives longer than ten years he or she will continue to receive payments for his or her lifetime. The guaranteed monthly payments will be less than “life only.” Life with 20 years certain– Payments will be made for at least twenty years, regardless if the annuitant lives for the entire twenty years. If the annuitant dies during the twenty-year period the remainder of the twenty-year payments will be made to a beneficiary. If the annuitant lives longer than twenty years he or she will continue to receive payments for his or her lifetime. The guaranteed monthly payments will be less than “life only”, and “Life with 10 years certain.”  Advantages of Immediate Annuities Annuities offer individuals an option of investing money in a manner that suits them best, in order to gain guaranteed returns from the annuities. There are many different types of annuities and immediate annuities offer investors an opportunity of making a lump sum payment, after which they immediately begin to receive payments from their investment.  The payment from the immediate annuity begins one time period after the investment is made, for instance for monthly payments option the payments begins one month after the premium is paid.  Immediate Annuities The immediate annuities guarantee a regular payment for a certain amount of time or for life. The option is chosen by the investor and thus provides them a secure and guaranteed form of income. It is a good investment for individuals who are about to retire and have a large sum of money in their hands and are unable to decide how to invest it. The immediate annuities provide the investor the security of knowing that they will continue to get payments from the investment for their life or for a long period of time. For investors who don’t want to make risky investments the immediate annuities provide an ideal solution and provides them regular income immediately after the investment is made. Immediate annuities provide the individual flexibility in the manner in which income payments may be received. The income may be received monthly, quarterly, semi-annually or annually. Immediate annuities are tax deferred and you pay taxes only as you receive the payments from it. Immediate annuities are a safe and secure investment option where the investor does not have to worry about rising or falling interest rates, nor does the investor have to worry about managing their investment portfolio. Immediate annuities provide better rates of return than CDs or Treasury rates.  The income received from immediate annuities is calculated by taking into account various factors such as life expectancy of the investor and expected rate of return on the investment.  The advantages of immediate annuities make it an ideal investment for people who are averse to risky investments and wish to receive money from the investment right away.