How to Guarantee Safe Lifetime Income Payments for California Residents

Author: Randy Taylor, Copyright Creative Commons License 2011

https://www.facebook.com/RandyTaylorFinanciall
Website:    http://finsecurity.com/RTaylor
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Life insurance and I.R.A. Account Specialist
Serving clients and brokers since 1983
(916) 601-5270
Ca. Lic.0643596


QUESTION:  Interest Rates are low. Would a Fixed Indexed Annuity, Savings Account give me guaranteed level income that is competitive with other safe savings vehicles like Municipal Bonds, Bank Certificates of Deposits, and others?

SOLUTION:  If your goal is clearly to take level income payments at retirement and you have other sources of liquid cash for emergencies; a Fixed Indexed Annuity can  make perfect sense; but in most cases an "Income Rider" is recommended. The income rider guarantees crediting towards an income account that can grow at a rate in today's economy by as much as 6% compound interest; guaranteed by contract. The income rider has caveats, so you will want to review a sample policy, all disclosures and also check with your tax and/or financial advisor. For example, this high interest crediting only applies during the accumulation phase and ceases after you begin to take guaranteed withdrawals.
Withdrawals can exceed the recommended payment at retirement; but would then reduce future payments. In other words, for income payment purposes; this is valuable but you need to learn the rules and play by them.



What is a Fixed Indexed Annuity?  A fixed indexed annuity in layman's terms is a savings account whereby the insurance company credits interest on an annual basis based on any upward changes in stock market indices such as the S&P index. In most cases the account "resets" yearly so that you do not have to recover lost interest if the market index you chose goes down. This is key in a volatile market.



Why add an Income Rider?:  An income rider is a separate endorsement or contractual addition which states that interest will be credited to a separate "Money Bucket" that grow at a predetermined rate. (6% compound interest or 7% Simple Interest with 2 of the most popular companies as of 12/20/2011.)  The key is that if you leave your deposit with the insurance company and take the payment dictated by the insurance company; you cannot ever outlive your income payments. The insurance company guarantees a lifetime income payment as long as you follow the contractual guidelines which are disclosed before purchase by contract.  Your income payments in today's economy can be as high as5 times that of the interest payment from a bank c.d. account for example. For details see your advisor or tax person.
Key features:  1.) Lifetime Income Payments:  Even in a situation with a term of 10 years, you can  take guaranteed income payments starting after only 1 year and get a very high income  payment guaranteed  for life if you have an income rider attached to the annuity product.
                         2.)  Unlike older annuities that used to require giving up access to your principal if you chose to start  guaranteed  income  payments; Newer indexed  annuities with income riders attached; allow you to cancel and take any cash that has not been spent from the basic accumulation account.

What are the downsides of an income rider?  Fees: There is a fee that is around  .75% with most companies. This fee reduces the  growth in the accumulation account that is available at surrender .  It also reduces the amount of  money available to the beneficiary at death due to the fee; but a good broker can put you in a product that waives the fees at death. Penalties for early withdrawal: There are penalties with all annuities if you take more than the free 10% annual withdrawals that the contracts typically allow. There are waived at death but  reduce affect your cash availability if you cancel early.  You will want to consult with your financial advisor and/or tax accountant or attorney before taking income or  cash from any annuity.

Advantages of an indexed annuity:
                                                        Safety:The principal has a minimum  interest guarantee which gives a consumer safety of principal if kept to the end of the term which can be 5 , 7, or 10 years in most cases.
                                                        Income  Tax Deferral: Funds grow  tax deferred until spent or death occurs.
                                                        Probate Avoidance: This is simple: There is a named beneficiary since this is similar to an insurance contract like life insurance and typically avoids probate without a  will or trust.

                                                        Lifetime Income Features: Money can be taken in the future as a single lump sum or in level payments that are guaranteed to continue for life.

*The above article is offered for comparison purposes and  entertainment only and is not meant to give legal, tax, or investment advice.  Please consult with your personal financial advisor including your attorney or tax advisor before buying an indexed annuity or investment vehicle of any type. Please also ask  for a statement of understanding and complete annuity contract sample related to any specific annuity offered to you by any advisor before purchasing any annuity.


Author: Randy Taylor, Copyright Creative Commons License 2011

https://www.facebook.com/RandyTaylorFinanciall

Linked in Recommendations:http://www.linkedin.com/in/randytaylorlifeandannuities
Life insurance and I.R.A. Account Specialist
Serving clients and brokers since 1983
(916) 601-5270
Ca. Lic.0643596