Annuity Pays and Pays and Pays and ..

The Annuity is a unique type of savings account offered by Life Insurance Companies. Unique because it is the only investment vehicle that guarantees that you can't outlive your money no matter how long you live.

Defined as a series of income payments received for a period of time. You choose the time period. Periods can be for a set amount of years or for the rest of your natural life and even continue on for your partner’s life if you prefer.

The idea of an Annuity dates back to the Roman era. The pooled contributions of many contribute to the income needs of those that live longer than expected. In contrast, Life Insurance pools its contributions to sustain survivors of the unfortunate few that pass too soon.

These insurance-backed contracts are the only investment vehicle that can guarantee a "Fixed" interest rate and deliver a permanent income stream.

Think about that for a moment....

Of all the financial products available from all of the various types of financial service companies, only an insurance company can deliver this type of promise. In a world where not much is guaranteed, collecting income for life is increasingly more valuable since we are all expected to live longer than our parents will.

Outliving assets has serious implications for the retiree and any adult offspring. It is likely that one can become a financial drain at the same time that adult children are trying to accumulate their own retirement funds and finance college level education costs for their children.

If you want absolute assurance that your money is going to be in your checking account on the 1st business day of the month, like Social Security, then an Annuity must be part of your overall approach to provide a stable, stress free and predictable retirement income. We also like high dividend paying stocks that have increased payouts over the last 10 years but we will cover this on a different website. Payment amounts are based on several factors. Your expected longevity, the amount of cash that you begin with, interest rate factors, and insurance company expenses all play a part in determining the actual monthly payment that you will receive.

There are two phases to an Annuity agreement:

Accumulation phase - allows you to make deposits that earn a stated amount of interest similar to a bank certificate of deposit. Deposits can be used as guaranteed alternatives to stock or mutual fund investments when rolling over or transferring 401k or 403b type retirement accounts.

Annuitization phase - is completely voluntary. If elected, your principle is converted into a series of income payments for a period of years or your natural lifespan. Options exist to continue payments to beneficiaries if you die too soon. It is this contractual provision that has become so popular and increasingly utilized in the last 8 years since our stock markets have become so volatile.

Under the "Fixed" interest category there are several choices designed to appeal to the profile of the risk adverse investor. ________________________________________________________________

• Multi-Year Guaranteed— Provides a fixed guaranteed interest rate for a fixed period of time often referred to as “CD” equivalents.

• Traditional or Bonus — Provides a guaranteed minimum interest rate that remains in effect for as long as the policy is in force. In addition, the company declares a current rate of interest that may be in excess of the guaranteed rate. The current rate generally remains in effect for the term of the contract. At the end of that time, the company declares a new current interest rate, which may be higher or lower than the previous rate, but not below the minimum interest rate guaranteed by the policy.

• Single Premium Immediate(SPIA) — are purchased using one premium payment, like when rolling a 401k or 403b over to an IRA (Individual Retirement Account) with the purpose of providing a guaranteed income for either the owner's lifetime or for a specified number of years depending on the payment option selected.

•Indexed — Is a type of fixed (guaranteed) annuity. That’s because indexed values, like traditional fixed annuity values, are backed by the full faith and credit of the insurance company and a minimum guaranteed interest rate is specified in the policy. Where Indexed Annuities differ from traditional fixed annuities is in the method of determining the current interest rate to credit to annuity values. Instead of declaring a specific rate, as is done with traditional fixed annuities, the company issuing an equity-indexed annuity states that it will credit interest based on the change in value of a specified equity index, such as the S&P 500 or Dow Jones 100.

How Do I Know If A Fixed Deferred Annuity Is Right?

The questions listed below may help you decide which type of account, if any, meet your retirement planning and financial needs. You should think about what your goals are for the money that you place into the annuity.

Do I want this pool of money at risk, where I may lose the principle?

Do I want a guaranteed interest rate and no risk of losing the principle?

Do I want guarantees and a chance to earn more as interest rates rise?

Can I get money when I need it?

Do I want the benefit of tax deferred growth on my money?

Would I like this asset to skip the troubles of probate in case of my passing?

In summary annuities:

Historically offer higher interest rates than their competitors…bank CD’s & Money Market accounts.

Offer better guarantees than other fixed interest products.

Provide a combination of safety and liquidity.

Provide tax-deferred interest. (Only relevant if account is not qualified like an IRA, 401k or 403b)

Charge no sales fees. 100% of your money is put to work.

Provide a choice of interest rate guarantees. Avoid probate.

Guarantee principle protection.

Guaranteed minimum interest rate that remains in effect for as long as the policy is in force.

Today, annuities are more popular than ever, with annual sales estimated to be over $200 billion. Millions of prosperous-retirement-minded investors have been able to use the annuity structure to their advantage.