Should you keep your BANK Account or get a Annuity?

WHY you should consider one of the 4 Annuities.

 Annuity is a financial product which is sold by life insurance companies to help you generate a fixed regular income for the rest of your life. So let me explain how this works. You pay a lump sum amount to the insurance company say hundred thousand dollars, in return the insurance company will pay you let's say around seventy thousand dollars every year for the rest of your life. Off course you can choose to take the seventy thousand on a monthly, quarterly, half-yearly or on an annual basis.

At a broader level there are two types of annuities, immediate and differed. In immediate annuity plans an individual needs to invest a lump sum amount in the insurance plan, and he would immediately start getting a fixed return at regular intervals and he does not need to wait for a retirement. In case of deferred annuity plans individual needs to invest a fixed amount regularly and the payment would not happen immediately, the amount would be accumulated till his retirement and would be paid out at a later date.

The ways it would be paid out depends upon his annuity plan, again there are two types; guaranteed annuity and variable annuity. In case of guaranteed annuity there is a fixed rate of interest paid out for the annuity period. In case of variable annuity the returns depend upon the returns of the underlying assets. You have a choice to choose from a conservative, moderate and an aggressive portfolio based upon the payout options.

Let’s have a look at different kind of annuity plans

• SPIA (single premium Index annuity)
• FIA( fixed index annuity)
• Fixed Annuity
• Variable Annuity

SPIA (single premium Index annuity)

What is a SPIA? It is a single premium immediate annuity. Single premium means you're only going to put money in one time and it's going to generate some kind of immediate income right away, and really this is what most consumers think of when they hear the word annuity. It's that income stream that starts right away and it goes for a certain amount of time.

Fixed Index Annuity

To understand fixed index annuity, let’s take example of Apple stocks. I think everybody would agree that it is a fantastic company; however you would probably agree with me that you don't want to have all of your money invested in Apple stock! Well same thing with an annuity, an annuity can be a fantastic investment tool or savings vehicle if used properly in a comprehensive income plan.

In fixed index annuities you know you don't lose money when the market declines and you you'll make money when the market goes up. So looking at that, if the market goes down your fixed indexed annuity account value stays the same if the market goes up your account value goes up. Well there are two catches to that number, one if the insurance company is giving a guarantee that you don't lose money on the downside, well on the upside you don't

get a hundred percent of the upside as well, so there's going to be a cap or a participation rate often times where you may only receive percent of the upside of the market potential, so that's one of the disadvantages and for many people in retirement they're not so much with concerned with continuing to grow their portfolio as they are with protecting it. These products aren't designed to compete directly with investment products where you're invested directly.

The other potential disadvantage is the fact that there's a holding period or surrender charge period so that the money essentially is locked up for a period of time, now that period of time can be anywhere from five to ten fifteen years.

Fixed Annuity and Variable Annuity

Simply a variable annuity is a security product, the actual value of the policy rises and falls directly based on the returns of the sub accounts or mutual funds inside the policy, on the other hand the fixed annuity is an insurance product that guarantees the value of the policy can never go down based on market performance.

So many times the clients will bring in a variable annuity into my office for me to review and for some reason many people misunderstand exactly what they bought so I hear the same story over and over again, ‘my broker told me I can't lose any money’, ‘I'm guaranteed to get X amount of growth every year’ and ‘I'm not aware of the fees inside my policy’.

Now what I like to do is call the insurance company directly on the speakerphone and let the client listen in while I ask some questions. I ask the insurance company can this policy go up in value and also go down in value? How much is the client really paying in fees?

And what we find is most of these policies charge was called the mortality and expense fee but they also have the administration fee, to have the fee on the income Rider they have the fee on the sub account and there's also fee on the death benefit. By the time we add up all the fees the totals can range between three and five percent and what that means to the client is that he or she must earn that amount per year in order just to break even, obviously in a down market that could be very difficult to achieve.

There also seems to be a big misunderstanding concerning their income Rider. What they hear is they're going to earn for example 6% every year forever in their account and that the value cannot go down but in reality because it is a variable annuity the account value will change based on market returns.

Now my opinion for most retirees a much safer way to invest for guaranteed income for life would be in a fixed indexed annuity with a good income rider. Now obviously the main difference is that a fixed annuity guarantees that the clients premium will never go down, indexed annuities also offer income riders that are many times more competitive than those found on the variable annuities. These riders do have charges favor which can range between a half a percent to one percent, but the guarantees on these riders range between five to ten percent growth per year, based on which insurance company the client chooses.

So you see there are lots of questions to be answered, terms to be understood and pitfalls to avoid. And that’s why it's critically important that you work with a professional financial advisor who's accustomed to designing income plans and creating an income plan that provides a guaranteed income but still leaves you plenty of reserve money for emergencies that come up throughout life.

Time to get a Annuity and don't lose your Retirement this time with this Market unstability.

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