Annuity Retirement And Investment Products

Types Of Retirement Annuities

There are many different types of annuities but they can be generally classified into three categories.

Fixed Annuity

A deferred fixed annuity earns a guaranteed interest rate set by the insurer for a specific period of time. For instance, a 5 year fixed annuity with a 3% interest rate would pay the annuity owner 3% for 5 years.

A fixed index annuity is a type of fixed annuity that credits interest based on the performance of a such as the S& P 500. Fixed Index Annuities offer a chance to earn more interest than a fixed annuity but have the risk of earning zero percent interest in some years.

Visit our Online Fixed Index Annuity Store to compare todays best fixed index annuity rates.

Variable Annuity

You can lose money in a variable annuity as the annuity value goes up and down based on the performance of the underlying investments. When you purchase a variable annuity you invest directly in stocks, bonds, and mutual funds via subaccounts similar to selecting allocation options inside of a 401.

A Registered Index-Linked Annuity is a type of variable annuity that is a hybrid between an indexed annuity and a variable annuity. A RILAs upside potential is higher than that of an index annuity, but your funds are still not directly invested in the market.

What Is A Good Return Rate For An Annuity

The top rate for a three-year annuity is 2.25%, according to Annuity.orgs online rate database. For a five-year, its 2.80%, and for a 10-year annuity, its 2.70%. That said, its important to keep in mind that annuity return rates are not measured the same as, for example, a mutual funds rate of return.

Whereas a mutual fund could return 30% one year and lose 6% the following year, annuities are designed to provide steady income over time, in some cases, for as long as you live. Income preservation into your 80s and 90s is the trade-off you make for guaranteed income from this insurance product. Its generally not about chasing the highest rate of return you can find, but rather a safe product provided by a financially sound company with great customer service.

Ology Being A Top Annuity Company

Weâve identified six main ingredients that allow us to understand which is the best annuity out there that works for you. Not every annuity company is created equal and not every annuity company is right for everyone. Some are better for people about to retire while others are better for millennials.

Here is the methodology and data we used to analyze each annuity company:

We have broken down each annuity company into what should work for you at this stage of your life. We hope you enjoy the list.

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• âA-â rating by Better Business Bureau âAâ rating by A.M. Best

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What Are Common Types Of Annuities

Annuities are generally structured as either fixed or variable instruments. Fixed annuities provide regular periodic payments to the annuitant and are often used in retirement planning. Variable annuities allow the owner to receive larger future payments if investments of the annuity fund do well and smaller payments if its investments do poorly. This provides for less stable cash flow than a fixed annuity but allows the annuitant to reap the benefits of strong returns from their fund’s investments.

Types Of Accumulation Annuities

There are four basic types of accumulation annuities offered by life insurers in New York. The four types differ in how investment income is credited under the contracts. The first three listed below are considered fixed deferred annuities because the account values do not vary directly with the investment experience of the supporting assets during the accumulation period.

Excess Interest Annuity. The excess interest annuity is the most common type of accumulation annuity. The contract guarantees a minimum interest rate for the life of the contract, but permits the insurer to declare discretionary excess interest. Such discretionary excess interest is generally determined and guaranteed annually in advance and is based upon present and anticipated earnings on current investments of the insurer. The periodic changes in excess interest permit insurers to offer rates that adjust in response to prevailing market rates.

• The minimum interest rate is based upon the five-year constant maturity treasury index. In most contracts, the minimum interest rate is set at issue, but some contracts permit the minimum rate to be adjusted periodically.
• Excess interest contracts provide flexibility with respect to premium payments .
• For excess interest annuities, the surrender charge is capped at 10% and generally reduces to 0% after a number of years .

For an EIA, it is important that you know the indexing features used to determine such excess interest. You should know whether:

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Where Does Your Premium Go

Annuities are categorized as either immediate or deferred and either fixed or variable.

In all cases, you pay a premium for your annuity. The insurance company invests your premium, along with the premiums it collects from hundreds of other annuity owners, and invests it.

Insurance companies are what are referred to in the investment world as institutional investors. Institutional investors invest huge sums of pooled money in stocks and bonds to generate returns large enough to allow them to pay out the income streams they guarantee.

The type of investments the insurance company puts your money in depends on the type of annuity you purchase.

Interested in Buying an Annuity?

• Best Multi-Year Guaranteed Annuity: American National

With low fees, the ability to rebalance or trade without penalties, six annuities to choose from, and personal service from selection to account servicing, Fidelity scored top marks to become our best overall annuity provider.

• Low fees, including account transfers

• Rebalance or trade without penalty

• Six annuity choices in three categories

• Personalized customer service with high ratings

• Some annuities require a higher initial investment than other providers

• Some people have reported difficulty in making withdrawals or closing their account

Fidelity, with higher customer service ratings, personalized consulting on the front-end to plan your annuity strategy, low fees, and several annuity options, earned our praise as the overall best.

Annuities Vs Life Insurance

Life insurance companies and investment companies are the two primary types of financial institutions offering annuity products. For life insurance companies, annuities are a natural hedge for their insurance products. Life insurance is bought to deal with mortality risk, which is the risk of dying prematurely. Policyholders pay an annual premium to the insurance company that will pay out a lump sum upon their death.

If the policyholder dies prematurely, the insurer pays out the death benefit at a net loss to the company. Actuarial science and claims experience allow these insurance companies to price their policies so that on average insurance purchasers will live long enough so that the insurer earns a profit. In many cases, the cash value inside of permanent life insurance policies can be exchanged via a 1035 exchange for an annuity product without any tax implications.

Annuities, on the other hand, deal with longevity risk, or the risk of outliving one’s assets. The risk to the issuer of the annuity is that annuity holders will survive to outlive their initial investment. Annuity issuers may hedge longevity risk by selling annuities to customers with a higher risk of premature death.

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Fixed Index Annuities: Consider The Alternative

After conducting exhaustive research for his 2018 study, Ibbotson concluded annuities are a good investment for retirement savings not just for income during retirement.

The 20-page report focuses on uncapped Fixed Indexed Annuities which he says, if structured properly, can help control financial market risk, mitigate longevity risk, and may outperform bonds over time.

Recent innovations in annuity product design, combined with an increasingly competitive marketplace, have given individuals preparing for or in retirement powerful and more affordable tools to not only mitigate retirement risks but also to serve as a vehicle to increase wealth leading up to retirement.

Ibbotson along with an impressive team of experts at Zebra Capital Management ran hypothetical return simulations from 1927 to 2016.

Their research found that net of fees, fixed index annuities had an annualized return of 5.81%, compared to 5.32% for long-term government bonds and 9.92% for large-cap stocks over that period .

Investing Alternatives For Conservative Investors

Investors in or near retirement might consider investing alternatives such as cash, high-yield checking or savings accounts, stable value funds and more.

The year 2022 was a bit of a doozy for both stock and bond investors, with both stocks and bonds experiencing double-digit losses for the year, something that is incredibly rare. While maintaining a diversified portfolio and staying the course is critical for a long-term investors success, the following five investing alternatives could help those who are approaching retirement or are in retirement and looking to safeguard their assets in the current market environment:

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Best Straight Life Annuity: Usaa

USAA

USAAs Single Premium Immediate Annuity took the title of the best straight life annuity with its blend of low fees, immediate payment, financial stability, and a plethora of program options.

• Not tied to market risk

• Your money will never earn less than the guaranteed minimum interest rate

• Limited growth you may not earn as much as investing in the stock market

• Early withdrawal penalties from the IRS

• Surrender charges may apply

With a $0 minimum initial premium, no annual fees, and flexible program options, USAAs SPIA stands as the best straight life annuity. Its Lifetime Only option guarantees income for life, and payments stop when you die because there is no beneficiary with this planthus offering higher regular income payments.

USAA has been around since 1922 serving military members and their families with insurance, banking, investments, and retirement products like annuities. The company has over $71 billion in assets under management and an AM Best rating of A++.

USAA offers deferred annuities and immediate annuities.

• Fixed Guaranteed Growth Annuity : $20,000 to $50,000
• Single Premium Immediate Annuity: No minimum

There are no annual contract fees or upfront fees. The only charge USAA calls out is the 10% IRS penalty, which is only relevant if you make a withdrawal before age 59 1/2.

How Do Annuities Work

Annuities work by converting a lump-sum premium into a stream of income that a person cant outlive. Many retirees need more than Social Security and investment savings to provide for their daily needs.

Annuities are designed to supply this income through a process of accumulation and annuitization or, in the case of immediate annuities, lifetime payments guaranteed by the insurance company that begin within a month of purchase no accumulation phase necessary.

In essence, when you buy a deferred annuity, you pay a premium to the insurance company. That initial investment will grow tax-deferred throughout the accumulation phase, typically anywhere from ten to 30 years, based on the terms of your contract. Once the annuitization, or distribution, phase begins again, based on the terms of your contract you will start receiving regular payments.

Annuity contracts transfer all the risk of a down market to the insurance company. This means you, the annuity owner, are protected from market risk and longevity risk, that is, the risk of outliving your money.

To offset this risk, insurance companies charge fees for investment management, contract riders, and other administrative services. In addition, most annuity contracts include surrender periods during which the contract holder cannot withdraw money from the annuity without incurring a surrender charge.

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The 4 Types Of Annuities

There are four basic types of annuities to meet your needs: immediate fixed, immediate variable, deferred fixed, and deferred variable annuities. These four types are based on two primary factors: when you want to start receiving payments and how you would like your annuity to be invested.

• When you are planning to begin receiving payments You can either receive your annuity payments immediately after paying the insurer a lump sum or you can receive monthly payments in the future .

• How your annuity investment may potentially grow Contributions to an annuity can grow in a couple of different ways through interest rates and by investing your contributions in the market .

What Are The Benefits And Risks Of Variable Annuities

Some people look to annuities to insure their retirement and to receive periodic payments once they no longer receive a salary. There are two phases to annuities, the accumulation phase and the payout phase.

• During the accumulation phase, you make payments that may be split among various investment options. In addition, variable annuities often allow you to put some of your money in an account that pays a fixed rate of interest.
• During the payout phase, you get your payments back, along with any investment income and gains. You may take the payout in one lump-sum payment, or you may choose to receive a regular stream of payments, generally monthly.

All investments carry a level of risk. Make sure you consider the financial strength of the insurance company issuing the annuity. You want to be sure the company will still be around, and financially sound, during your payout phase.

Variable annuities have a number of features that you need to understand before you invest. Understand that variable annuities are designed as an investment for long-term goals, such as retirement. They are not suitable for short-term goals because you typically will pay substantial taxes and charges or other penalties if you withdraw your money early. Variable annuities also involve investment risks, just as mutual funds do.

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Annuities Compared To Other Retirement Vehicles

401

If your employer offers a 401 retirement account, you are able to save money for retirement through investment products such as stocks, bonds, mutual funds, and exchange-traded funds . Its a very common and simple way for people to save money for retirement over the long term.

An advantage of a 401 versus an annuity is that employers often contribute matching funds to your 401 employers dont contribute to annuities. It also makes it easier to save because it comes directly out of your paycheck so you never see the money.

A disadvantage, however, is that annual contributions to a 401 are capped, whereas annual contributions to an annuity typically are not capped.

Stock Dividends

Many companies issue shares of stock that pay dividends. One way you can generate annuity-like income from a retirement portfolio is by purchasing stocks that pay dividends.

Many blue-chip companies issue stocks with dividend yields of 3%, 4%, 5%, or more. There are simple, broad-market index funds designed to provide dividend yields in the 3-5% range.

If you have a $300,000 stock portfolio with an average dividend yield of 4%, it will generate $12,000 in income each year, or, $1,000 per month.

Financially strong and healthy companies tend to increase dividends over time so theoretically, your income could offer some inflation protection.

Bonds

How Are Annuity Rates Set

Annuity rates are set differently depending on the type of annuity. For example, the issuing insurance company sets the rate of a fixed annuity. They will guarantee this rate for a set period, usually between three and 10 years.

Rate setting is more complicated for other kinds of annuity contracts whose interest rates may vary throughout the term of the contract. A fixed indexed annuity, for example, has both a fixed rate and a rate thats tied to the growth of an equity market index. The indexed rate may be set according to several factors, including rate caps and floors, to keep the rate within a specified range.

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An annuity is a contract between you and an insurance company that provides certain income or investment guarantees to fit your individual needs.

Best Fixed Indexed Annuity: Allianz

Allianz

Allianz sets itself apart as our choice for best fixed indexed annuity with its two income bonuses. One you earn during your retirement saving phase and the other once you begin receiving payments.

• No annual fees on their fixed indexed annuities

• Minimum initial premium between $10,000 and $20,000

• Seven annuity choices

• Start buying your annuity contract at the age of 50

• Fee-free withdrawals only on the 11th contract year onward

It is tough to beat zero annual fees, but Allianz takes its efforts to the next level by designing in two bonuses to earn it the best fixed indexed annuity title. Customers are eligible for a 15% boost to any premium payments they make in the opening 18 months of the contract. Once you start receiving payments, you stand to gain further thanks to Allianz paying a 50% bonus on any interest your indexed assets earn.

The company started in Minneapolis, Minnesota, in 1896. Allianz has since grown to become a leading provider of retirement and protection solutions both locally and internationally. Allianz Life boasts an AM Best rating of A+.

Allianz offers seven fixed indexed annuities:

The fixed indexed annuities have surrender charge periods between seven to 10 years, and typically start with a 10% penalty and decrease by one percent each year. Rates of return range from 4.24% to 7.83%.

Allianz has a total of $2.82 trillion assets under management for 92 million retail and corporate clients.

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