10 Questions Seniors Should Ask When Considering the Purchase of an Annuity.RESTON Reston, uninc. city (1990 pop. 48,556), Fairfax co., N Va., a planned community established in 1961. A suburb of Washington, D.C., Reston is organized in a series of residential villages and commercial areas. , Va. -- Senior Americans(1) considering the purchase of an annuity annuity: see insurance. annuity Payment made at a fixed interval. A common example is the payment received by retirees from their pension plan. There are two main classes of annuities: annuities certain and contingent annuities. to help save for or provide income during retirement should understand the options, features, benefits, and costs to ensure that it meets their individual financial situations. An annuity is a flexible financial retirement vehicle combining guaranteed lifetime income payments, other insurance benefits and tax-deferred tax-de·ferred adj. 1. Of or relating to an investment that is not liable to taxation until income is withdrawn or an appointed date is reached. 2. savings, and can be a beneficial option for many older Americans. Age is only one of the important factors that should be considered when determining the appropriateness of an annuity. Of equal importance are the number of years an individual expects to live in retirement, the nature of his or her retirement lifestyle, other sources of income that the individual may have, and life expectancy Life Expectancy 1. The age until which a person is expected to live. 2. The remaining number of years an individual is expected to live, based on IRS issued life expectancy tables. . "Today's annuity products offer greater liquidity, flexibility and a broader range of features than in the past, and are uniquely designed to address longer life expectancies, increasing retirement horizons and other new retirement realities," said Mark Mackey Mackey can refer to: People
Investment contracts whose issuer pays a periodic amount linked to the investment performance of an underlying portfolio. (NAVA NAVA National Association for the Visual Arts NAVA National Association for Variable Annuities NAVA Navajo National Monument (US National Park Service) NAVA North American Vexillological Association ). "Annuities can be used in a variety of situations for older Americans, including individuals who require a paycheck for life, and those who wish to take advantage of the traditionally higher returns of the equity market while having protection of their investment against downside Downside The dollar amount by which the market or a stock has the potential to fall. Notes: You might hear someone say that the downside on stock XYZ is $10. What that means is that the stock could fall by this amount if things got bad. market risk." Like any investment, an annuity is not appropriate for everyone. According to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. NAVA, the first step is to consider the following important questions, and then consult with a financial advisor:
1. What are my retirement goals and objectives?
It is important that you understand your stage of retirement and
define your personal retirement goals (e.g., travel, live
comfortably at home, leave money to heirs, start a second career).
Your needs will be very different if you are entering retirement
at age 65, as opposed to living in retirement at age 80.
2. When do I expect to retire?
Estimating when you expect to retire is a critical step in
structuring a financial retirement plan. Many Americans today are
retiring earlier than previous generations. For example, a recent
study revealed that 34 percent of Americans expect to retire
between age 50 and 64(2).
3. How long do I expect to live in retirement?
Today Americans are living longer, and it is more common for them
to spend 25 or more years in retirement. Projecting your life
expectancy will help ensure your savings will sustain your
envisioned retirement lifestyle. Estimate your own life expectancy
considering such factors as your current health, the life spans of
immediate family members, your current lifestyle, and your outlook
on life.
4. Do I need supplemental retirement income?
An annuity can be used to supplement your other retirement income
sources by providing payments that cannot be outlived to help
cover expected living expenses. Calculating the "gap" between
available retirement income (Social Security, a pension and
savings) and your essential living expenses (housing, insurance,
etc.) can help determine how an annuity can be of value.
5. Do I want my retirement savings to continue to grow?
As Americans spend more time in retirement, many are in a position
to keep a portion of their assets invested in equity-based
products, where the highest returns have traditionally been,
rather than in more conservative investments, such as CDs and
bonds. Deferred annuities allow assets to grow tax-deferred, offer
protection against downside market risk and offer the option of
guaranteed lifetime income payments at some point in the future.
6. How can an annuity help meet my retirement needs?
An annuity is the only personal retirement product that provides a
guaranteed paycheck that cannot be outlived. In addition, deferred
variable annuities allow you to take advantage of tax-deferred
investment growth, while providing "living benefits" offering
insurance protection against downside market risk and a variety of
options to access your money. Annuity death benefits offer
additional protection of your assets. (See Annuity Definitions
sidebar for detail.)
7. Is there a surrender period associated with the annuity?
There may be charges to withdraw some or all of the funds in the
annuity during the early years of the contract, generally five to
seven years. While most annuity contracts have surrender periods,
many newer products have short or no surrender periods. (See
Understanding the Cost of Variable Annuities sidebar for detail.)
8. When will I need access to the money in my annuity?
One feature offered by many deferred annuities is the ability to
withdraw a portion (e.g., 10-15 percent) of the initial investment
each year without surrender charges. Many annuities also provide
you with full access to your money -- also free of surrender
charges -- in situations of serious illness.
9. What do I need to know about annuity fees and the companies
offering annuities?
All financial products have fees, including all "no-load"
investments. While fee structures vary, it is essential that you
understand what you will be charged and when. In addition, annuity
buyers need to consider the insurance company's financial
strength, ratings and reputation. It is important to know that the
company backing the annuity guarantees will be there in the
long-run. (See Understanding the Cost of Variable Annuities
sidebar for detail.)
10. Does my financial advisor understand my retirement goals?
It is important to seek advice from an advisor who is
knowledgeable about retirement-related issues and current annuity
features and benefits. Prepare a list of objectives before meeting
with your advisor so that together you can develop the best plan
to meet your financial retirement goals.
"The insurance industry is committed to helping all consumers make more informed retirement planning Retirement financial planning refers to a collection of systems, methods, and processes which, in their aggregate, support a family unit's (client's) desire to achieve a state of financial independence, such that the need to be gainfully employed is optional. decisions," continued Mackey. "Our hope is that these questions will help seniors better understand how annuities work and the tremendous value they provide." About the National Association for Variable Annuities (NAVA) NAVA is a non-profit trade association located in suburban Washington, D.C. NAVA provides a variety of services to the industry including educational forums, research and conferences aimed at furthering the development and understanding of fixed and variable annuities, income annuities and variable life insurance. NAVA also maintains and supports an educational website for consumers at www.RetireOnYourTerms.com. (1)Eligibility for AARP AARP, a nonprofit, nonpartisan national organization dedicated to "enriching the experience of aging"; membership is open to people age 50 or older. Founded in 1958 by Ethel Percy Andrus as American Association of Retired Persons, AARP now has over 30 million membership begins at age 50 (2)NAVA 2005 Retirement Horizon Study SENIORS AND ANNUITIES SIDEBAR (1) A Windows Vista desktop panel that holds mini applications (gadgets) such as a calendar, calculator, stock ticker and Vonage phone dialer. It is the Windows counterpart to the Dashboard in the Mac. See Windows Vista and gadget. : Annuity Definitions An annuity is a flexible financial retirement vehicle combining guaranteed lifetime income payments, other insurance benefits and tax-deferred savings, and can be a beneficial option for many older Americans. The following are common forms of annuities: Variable Annuity Variable Annuity An insurance contract in which, at the end of the accumulation stage, the insurance company guarantees a minimum payment. The remaining income payments can vary depending on the performance of the managed portfolio. A variable annuity allows individuals to invest in a variety of investment funds Noun 1. investment funds - money that is invested with an expectation of profit investment assets - anything of material value or usefulness that is owned by a person or company , including stocks, bonds and money market portfolios, and provides returns based on the performance of these funds. Fixed Annuity Fixed Annuity An insurance contract in which the insurance company makes fixed dollar payments to the annuitant for the term of the contract, usually until the annuitant dies. The insurance company guarantees both earnings and principal. A fixed annuity offers individuals a guaranteed rate of return for a defined period of time and the option of regular, fixed income payments. Immediate Annuity immediate annuity An annuity that is purchased with a lump sum and that begins making payments one period after the purchase. Immediate annuities are most commonly purchased by people who have accumulated a sum of money and are ready for retirement. Purchased with a single payment, an immediate annuity (also known as a "payout pay·out n. 1. The act or an instance of paying out. 2. A percentage of corporate earnings that is paid as dividends to shareholders. " or "income" annuity) can be designed to provide an income stream to an individual that cannot be outlived. Deferred Annuity Deferred Annuity A type of annuity contract that delays payments of income, installments or a lump sum until the investor elects to receive them. This type of annuity has two main phases, the savings phase in which you invest money into the account, and the income phase in which Purchased with either a single payment or periodic payments, a deferred annuity allows individuals to accumulate Accumulate Broker/analyst recommendation that could mean slightly different things depending on the broker/analyst. In general, it means to increase the number of shares of a particular security over the near term, but not to liquidate other parts of the portfolio to buy a security retirement assets tax-deferred, and also offers the option to provide income payments at some time in the future. These annuities have become increasingly feature-driven products by adding income and insurance guarantees to protect the accumulated ac·cu·mu·late v. ac·cu·mu·lat·ed, ac·cu·mu·lat·ing, ac·cu·mu·lates v.tr. To gather or pile up; amass. See Synonyms at gather. v.intr. To mount up; increase. growth of the investment. SENIORS AND ANNUITIES SIDEBAR: Understanding the Cost of Variable Annuities All financial products have fees, including all "no-load" investments. While fee structures vary, it is essential that the prospective investor understand what they will be charged and when. An annuity transfers the risk of outliving your retirement savings from you to the insurance company. It is a flexible financial retirement vehicle combining guaranteed lifetime income payments, other insurance benefits and tax-deferred savings. Annuity fee structures are based on the value of the investment and the insurance features and benefits provided. Typical variable annuity fees include: Investment Management Fee -- Similar to fees charged by mutual funds, these fees cover the management of the different funds in a variable annuity's investment portfolio. The average investment management fee for a variable annuity is 0.96% of the amount invested in the underlying funds. Insurance Charge -- Insurance charges include mortality and expense risk charges Mortality And Expense Risk Charge A variable annuity fee included in certain annuity or insurance products which serves to compensate the insurance company for various risks it assumes under the annuity contract. (M&E fees), which are typically 1.25% of the average value of the investment, and support the annuity's guaranteed lifetime income payout option, the death benefit and the guarantee that the annual insurance charges will not increase. Other elected insurance benefits (e.g., guaranteed minimum accumulation benefit, guaranteed minimum income Guaranteed minimum income is a proposed system of income redistribution that would provide eligible citizens with a certain sum of money (independent of whether they work or not), also known as "Basic Income Guarantee (BIG)", "universal basic income", "citizen's income scheme", benefit, guaranteed minimum withdrawal benefit) will have additional fees. Most contracts also impose administrative fees, which are typically around $30 per year. Surrender Charge Surrender Charge A fee levied on a life insurance policyholder upon cancellation of his or her life insurance policy. The fee is used to cover the costs of keeping the insurance policy on the insurance provider's books. -- Surrender charges are the fees charged for the early withdrawal of funds. They generally range from 5-7% of the amount withdrawn and usually decline to zero over a period of time, typically in five to seven years. However, many annuities offered today have shorter or no surrender periods. In addition to these fees, brokers often receive a commission for their time, expertise and professional guidance, which is similar to the commission brokers earn for equities, mutual funds and other financial products. Usually the commission is paid to the broker by the company issuing the annuity, and does not reduce the annuity's contract value. The company recoups the commission costs over time through the various contract fees and charges listed above. |
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