Thursday, June 24, 2004
Recent Client Question. WWW.legacyannuities.com
If I buy an Immediate annuity Life only will my hiers
recieve any thing upon my death?
The Immediate Annuity—Old Investment Revamped for Modern Times
The word “annuity” brings to mind different meanings for many investors. That’s because there are different types of annuities designed for different purposes. The oldest of these is the immediate annuity long used to generate a lifetime retirement income. The structure is well known as follows. (continued - see Immediate Annuity col. 1, page 2) The major drawback is an early death. In such a case, the annuity company keeps the funds and the income ends. This early-death financial risk has been a negative aspect for some investors. However, now there is a solution as some annuity companies will guarantee return of the investment to heirs in the case of an early death. The feature is called “life payments with installment refund.”
If I buy an Immediate annuity Life only will my hiers
recieve any thing upon my death?
The Immediate Annuity—Old Investment Revamped for Modern Times
The word “annuity” brings to mind different meanings for many investors. That’s because there are different types of annuities designed for different purposes. The oldest of these is the immediate annuity long used to generate a lifetime retirement income. The structure is well known as follows. (continued - see Immediate Annuity col. 1, page 2) The major drawback is an early death. In such a case, the annuity company keeps the funds and the income ends. This early-death financial risk has been a negative aspect for some investors. However, now there is a solution as some annuity companies will guarantee return of the investment to heirs in the case of an early death. The feature is called “life payments with installment refund.”
Tuesday, June 22, 2004
Recent Client Question. www.legacyannuities.com
What are the different types of annuities?
A "fixed annuity"is a deferred investment which pays a stated rate of return for a stated period and provides the added security of a stated minimum interest rate. These annuities are best at helping you meet your long-term goals. A fixed annuity may allow you to achieve potentially higher returns because taxes are generally deferred, a feature that allows you to benefit from the effects of compounding in three ways: You earn a return on your investment; on your earnings; and on the money you would otherwise have paid in taxes. Get a quote on a fixed annuity to begin the process of securing a fixed annuity now.
"Indexed annuities" guarantee a minimum return combined with the growth potential of the stock and bond market. Indexed annuities are tied to the performance of a stated index and are tax deferred until you begin to make withdrawals. See how you can maximize your earning potential through an indexed annuity by requesting a quote now.
"Immediate annuities" provide current income. You can arrange your annuity to provide income that is guaranteed for as long as you live. And, in many cases, you can also include a provision that allows your beneficiary to receive the income in the event you die prematurely. Request a quote on an immediate annuity and see how you can guarantee a steady income stream.
"Variable annuities" are deferred investments that have the same tax benefits of deferred fixed annuities, but their rate of return varies according to the returns of investment sub-accounts. You select the sub-accounts you want to invest in and decide how much risk you want to take. By allocating portions of your investment to different asset classes, it is possible to achieve a balance between risk and potential reward that is suitable for your particular circumstances. Take control of your investments by requesting a quote on a variable annuity
What are the different types of annuities?
A "fixed annuity"is a deferred investment which pays a stated rate of return for a stated period and provides the added security of a stated minimum interest rate. These annuities are best at helping you meet your long-term goals. A fixed annuity may allow you to achieve potentially higher returns because taxes are generally deferred, a feature that allows you to benefit from the effects of compounding in three ways: You earn a return on your investment; on your earnings; and on the money you would otherwise have paid in taxes. Get a quote on a fixed annuity to begin the process of securing a fixed annuity now.
"Indexed annuities" guarantee a minimum return combined with the growth potential of the stock and bond market. Indexed annuities are tied to the performance of a stated index and are tax deferred until you begin to make withdrawals. See how you can maximize your earning potential through an indexed annuity by requesting a quote now.
"Immediate annuities" provide current income. You can arrange your annuity to provide income that is guaranteed for as long as you live. And, in many cases, you can also include a provision that allows your beneficiary to receive the income in the event you die prematurely. Request a quote on an immediate annuity and see how you can guarantee a steady income stream.
"Variable annuities" are deferred investments that have the same tax benefits of deferred fixed annuities, but their rate of return varies according to the returns of investment sub-accounts. You select the sub-accounts you want to invest in and decide how much risk you want to take. By allocating portions of your investment to different asset classes, it is possible to achieve a balance between risk and potential reward that is suitable for your particular circumstances. Take control of your investments by requesting a quote on a variable annuity
Monday, June 14, 2004
Recent Client Question. www.legacyannuities.com
How do I get a high CD rate?
"How to Get the Highest Rate on Your CD"
Many of us have learned the hard way that we cannot take a nearsighted view of the economic landscape and expect our liquid assets to flourish. In recent years, with the decline of interest rates, many investors were lured away from the safety of Certificates of Deposit by the securities industry with the promise of higher interest rates. Brokers signed up clients by the droves. Stocks, bonds and mutual funds became the heavy favorites of former CD investors who chose to put their funds at risk with stock brokers rather than lower their standard of living. Some benefited from this; other suffered for it. Especially senior citizens who discovered what can happen to their non-insured accounts with local stock brokers and the larger wire houses when the economy shifts: They lose their hard earned savings.
Ask virtually any bond or mutual fund investor what has happened to their accounts since the beginning of 2000, the response will be unanimous, their Net Asset Values have diminished. Remember the hit the stock market took on 9/11/01? That was a wake up call to perhaps a greater shock to come. Many just rolled over and went back to sleep. On the other hand, many woke up! News reports tell us that hundreds of millions of dollars were yanked out of the securities industry and put back into safety.
The hard lesson learned was one that Will Rogers recited some years ago, "The return of principal is more important than the return on principal."
With the impact of global, national, and local economic changes coming to bear on virtually everyone with the subsequent losses in the stock and bond markets, there is a strong flow of dollars away from risk and back to safety. Where is money safe? The choices are limited to the banks and insurance companies.
When shopping for the best place to invest a CD, most people believe they have one of two choices:
1.) Go down to the bank where they have always done business, or
2.) Look in the paper to see who has the best rate in town.
In choosing one of these two avenues the CD investor has severely limited the growing power of their money. They have taken a nearsighted view of the economic landscape and it will probably cost them. Why? Because there are thousands of banks in this country, all FDIC insured, and it is very likely that they could earn from 1/2 to a full 1% more on their money if they knew it was available!
We study over 2,000 banks daily locating the highest rates in the nation on CDs with terms ranging from 90 days to 10 years! Virtually without exception, we can locate an FDIC insured CD for the term desired at an interest rate that is superior to what can be found in one's own community!
This is the only way to shop for money; anything else is myopic, if not extremely foolish! After all, when one invests in the stock market do they only research hometown stocks? Of course not! An investment counselor looks at the board and points out what they think is the most sound investment. Once the investor is convinced, they place an order, an order in a risky uninsured investment in a company that is probably in some distant city!
If a similar service could be provided offering a fully FDIC insured Certificate of Deposit, people would certainly take advantage of the information. That is exactly what has been occurring!
THERE ARE TWO TYPES OF CERTIFICATES OF DEPOSIT
1) Bank Certificates
As you well know, rates on CDs are continually changing due to various market conditions. When you purchase a standard CD with a set term such as maturity date, early withdrawal penalty, etc., your options are fixed and non-flexible. The longer term CD that pays periodic interest payments is known as a periodic CD. A CD that pays at maturity is known as an interest at maturity CD.
2) Annuity Certificates
Most people put their savings in bank CDs because it's FDIC insured. Little do they realize the cost they are paying for this coverage. One out of every three year's interest goes to taxes, plus all the other "catches" the bank attaches to your CDs.
Annuity Certificates are also safe and guaranteed by their reserves, billions of assets, by the world's largest life insurance companies. With an annuity certificate you get to keep the money you would pay Uncle Sam and draw interest on the money until you choose to pay taxes on the interest! This gives you triple compounding of your money, something bank CDs can't do! When you do, you can eliminate paying taxes on up to 85% of your income!
Here is a list of reasons why insurance companies are safe, and good places to put your money.
1. 100% + reserves required by law.
2. Nature of reserves is highly regulated.
3. Reserves are checked regularly and in detail through state audits.
4. Insurance company promises are backed by all the assets of the company.
5. Insurance company insolvencies are very rare.
And let's not forget ALL THE OTHER ADVANTAGES!
1. Non-qualified funds get tax-deferral, so potentially, you can earn much more.
2. There are no "renewable" surrender charges, as in a CD.
3. With a named beneficiary you avoid probate.
4. Free annual withdrawal provisions.
5. Waiver of some or all surrender charges due to confinement in a nursing home.
6. Waiver of surrender charges at death or annuitization.
7. Life income guarantees.
8. Annuity interest rates are usually higher than bank rates.
As you can see, when you become familiar with the facts, it makes a lot of sense to trust an insurance company.
How do I get a high CD rate?
"How to Get the Highest Rate on Your CD"
Many of us have learned the hard way that we cannot take a nearsighted view of the economic landscape and expect our liquid assets to flourish. In recent years, with the decline of interest rates, many investors were lured away from the safety of Certificates of Deposit by the securities industry with the promise of higher interest rates. Brokers signed up clients by the droves. Stocks, bonds and mutual funds became the heavy favorites of former CD investors who chose to put their funds at risk with stock brokers rather than lower their standard of living. Some benefited from this; other suffered for it. Especially senior citizens who discovered what can happen to their non-insured accounts with local stock brokers and the larger wire houses when the economy shifts: They lose their hard earned savings.
Ask virtually any bond or mutual fund investor what has happened to their accounts since the beginning of 2000, the response will be unanimous, their Net Asset Values have diminished. Remember the hit the stock market took on 9/11/01? That was a wake up call to perhaps a greater shock to come. Many just rolled over and went back to sleep. On the other hand, many woke up! News reports tell us that hundreds of millions of dollars were yanked out of the securities industry and put back into safety.
The hard lesson learned was one that Will Rogers recited some years ago, "The return of principal is more important than the return on principal."
With the impact of global, national, and local economic changes coming to bear on virtually everyone with the subsequent losses in the stock and bond markets, there is a strong flow of dollars away from risk and back to safety. Where is money safe? The choices are limited to the banks and insurance companies.
When shopping for the best place to invest a CD, most people believe they have one of two choices:
1.) Go down to the bank where they have always done business, or
2.) Look in the paper to see who has the best rate in town.
In choosing one of these two avenues the CD investor has severely limited the growing power of their money. They have taken a nearsighted view of the economic landscape and it will probably cost them. Why? Because there are thousands of banks in this country, all FDIC insured, and it is very likely that they could earn from 1/2 to a full 1% more on their money if they knew it was available!
We study over 2,000 banks daily locating the highest rates in the nation on CDs with terms ranging from 90 days to 10 years! Virtually without exception, we can locate an FDIC insured CD for the term desired at an interest rate that is superior to what can be found in one's own community!
This is the only way to shop for money; anything else is myopic, if not extremely foolish! After all, when one invests in the stock market do they only research hometown stocks? Of course not! An investment counselor looks at the board and points out what they think is the most sound investment. Once the investor is convinced, they place an order, an order in a risky uninsured investment in a company that is probably in some distant city!
If a similar service could be provided offering a fully FDIC insured Certificate of Deposit, people would certainly take advantage of the information. That is exactly what has been occurring!
THERE ARE TWO TYPES OF CERTIFICATES OF DEPOSIT
1) Bank Certificates
As you well know, rates on CDs are continually changing due to various market conditions. When you purchase a standard CD with a set term such as maturity date, early withdrawal penalty, etc., your options are fixed and non-flexible. The longer term CD that pays periodic interest payments is known as a periodic CD. A CD that pays at maturity is known as an interest at maturity CD.
2) Annuity Certificates
Most people put their savings in bank CDs because it's FDIC insured. Little do they realize the cost they are paying for this coverage. One out of every three year's interest goes to taxes, plus all the other "catches" the bank attaches to your CDs.
Annuity Certificates are also safe and guaranteed by their reserves, billions of assets, by the world's largest life insurance companies. With an annuity certificate you get to keep the money you would pay Uncle Sam and draw interest on the money until you choose to pay taxes on the interest! This gives you triple compounding of your money, something bank CDs can't do! When you do, you can eliminate paying taxes on up to 85% of your income!
Here is a list of reasons why insurance companies are safe, and good places to put your money.
1. 100% + reserves required by law.
2. Nature of reserves is highly regulated.
3. Reserves are checked regularly and in detail through state audits.
4. Insurance company promises are backed by all the assets of the company.
5. Insurance company insolvencies are very rare.
And let's not forget ALL THE OTHER ADVANTAGES!
1. Non-qualified funds get tax-deferral, so potentially, you can earn much more.
2. There are no "renewable" surrender charges, as in a CD.
3. With a named beneficiary you avoid probate.
4. Free annual withdrawal provisions.
5. Waiver of some or all surrender charges due to confinement in a nursing home.
6. Waiver of surrender charges at death or annuitization.
7. Life income guarantees.
8. Annuity interest rates are usually higher than bank rates.
As you can see, when you become familiar with the facts, it makes a lot of sense to trust an insurance company.
Thursday, June 03, 2004
Recent Client Question. www.legacyannuities.com
What can I do about taxes on my annuity?
As an annuity owner, you purchased your annuity with certain common goals in mind:
1. Safety of Principle
2. Tax Advantaged Compounding
3. To Avoid Probate
4. Possible Passing of Annuities to Heirs
5. Maximize After-Tax Account Values
6. To Create Future Income
The Problem
As your account values grow, you are increasing the taxable gain due in the future when you either need income, or upon your death. According to the Tax Code, all gains in an annuity contract are taxable upon redemption or death. The only exception to defraying the taxable gain is if you pass the annuity to your surviving spouse. This can create an even bigger tax trap when your spouse dies. In addition to income taxes, the deferred gain and the principle may also be subject to estate taxes. Without proper tax planning and estate planning, the taxes will come due all at once, therefore subjecting you or your estate to the maximum tax brackets. As time goes on, the tax problems compound.
The Solution
Due to a little known provision in the Tax Code, an annuity owner can change the character of future accumulations to provide tax-free income and a tax-free benefit to their heirs and still have safety of principle and avoid probate. Unfortunately, the gains you have accumulated to date in your annuity cannot avoid income taxation. However, you can greatly lower these income taxes through proper tax planning. The key to solving the tax timebomb dilemma is to change the nature of the accumulation to a tax-free status before the problem gets worse.
Some of the IRS exemptions that may apply to your situation are:
1. The exclusion ratio rule which allows regular distributions from an annuity contract to be mostly tax-free.
2. The establishment of little known trusts to avoid estate taxes.
3. The use of special insurance contracts that provide for both tax-free income and tax-free benefits to heirs.
4. Gifting strategies to reduce or eliminate income taxes and estate taxes.
What can I do about taxes on my annuity?
As an annuity owner, you purchased your annuity with certain common goals in mind:
1. Safety of Principle
2. Tax Advantaged Compounding
3. To Avoid Probate
4. Possible Passing of Annuities to Heirs
5. Maximize After-Tax Account Values
6. To Create Future Income
The Problem
As your account values grow, you are increasing the taxable gain due in the future when you either need income, or upon your death. According to the Tax Code, all gains in an annuity contract are taxable upon redemption or death. The only exception to defraying the taxable gain is if you pass the annuity to your surviving spouse. This can create an even bigger tax trap when your spouse dies. In addition to income taxes, the deferred gain and the principle may also be subject to estate taxes. Without proper tax planning and estate planning, the taxes will come due all at once, therefore subjecting you or your estate to the maximum tax brackets. As time goes on, the tax problems compound.
The Solution
Due to a little known provision in the Tax Code, an annuity owner can change the character of future accumulations to provide tax-free income and a tax-free benefit to their heirs and still have safety of principle and avoid probate. Unfortunately, the gains you have accumulated to date in your annuity cannot avoid income taxation. However, you can greatly lower these income taxes through proper tax planning. The key to solving the tax timebomb dilemma is to change the nature of the accumulation to a tax-free status before the problem gets worse.
Some of the IRS exemptions that may apply to your situation are:
1. The exclusion ratio rule which allows regular distributions from an annuity contract to be mostly tax-free.
2. The establishment of little known trusts to avoid estate taxes.
3. The use of special insurance contracts that provide for both tax-free income and tax-free benefits to heirs.
4. Gifting strategies to reduce or eliminate income taxes and estate taxes.
Recent Client Question? www.legacyannuities.com
What are some of the common mistakes investors make when purchasing an annuity?
THE MOST COMMON MISTAKES MADE BY ANNUITY INVESTORS
Mistake #1: Lack of Concern for Quality of Company
Many annuity investors fail to properly research the ratings of the insurance company issuing their annuity contract. Annuity owners commonly fail to keep updated on the company after they have made an investment. This is especially important with a fixed annuity because the insurance company has your money invested in their general account and guarantee both the principal and interest. In a variable annuity it is not nearly as important since the money is in separate accounts invested according to the stated objective of the sub-account (i.e. growth, balanced, international, bonds, etc.)
A.M. Best can no longer be relied upon as the number one authority in rating insurance companies. We rely more on Standard & Poors, Moody, Duff & Phelps and Weiss rating services in addition to analyzing the companies' investment portfolio. Our recommendation is to buy only from top-rated insurers.
If you would like a review of the ratings and ranking of your annuity company, please call us.
Mistake #2: Annuitizing the Contract
In most older annuity contracts, when it comes time to start receiving income you are forced into making a decision on what terms you want to annuitize under. Some options can be very unfavorable to the investor. For example, if you choose a life annuity that pays you a monthly check as long as you live and you die prematurely, the insurance company gets to keep the remainder of the funds, and your heirs get nothing.
Another drawback of annuitization is that you lose control of your money. Once you annuitize you cannot go back and increase or decrease the amount of your monthly check. This could be a serious problem if your annuity income does not keep pace with inflation.
Newer annuities offer an option called systematic withdrawal. This means you can set up your own schedule of monthly income that can be adjusted at any time. The remainder of your funds will continue to earn interest and when you die the funds go to your beneficiary, without the cost of delay or probate.
Mistake #3: Falling for High First Year Rates and Not Being Concerned with Renewal Rates
Many insurance companies will try to entice you into purchasing their annuity by offering a first year rate that is much higher than the going rate. After the first year the renewal rate will typically be much lower, but you will still have several years of surrender charges before you can move your money to another annuity. Approach unusually high rates with caution. Many high interest rate annuities have surrender charges that are no longer than the normal 5 to 7 years and in some cases the surrender charges never go away. Avoid these annuities and any other that restrict your withdrawals by giving you a lower rate if you move your money or don't annuitize with them.
Before you buy, look at the interest rate protection features and consider an annuity where you have the option to lock rates in for more than one year. Also, if you already own an annuity, make it a point to have your renewal rate reviewed each year by an unbiased annuity professional. Your annuity may have a bailout feature that allows you to move your money if the rate drops below a specific level. The annuity company will not notify you that the bailout feature has been triggered. We can research this for you so you can make an intelligent decision.
Mistake #4: Purchasing an Annuity with Limited Investment Options
The days of annuities only offering a one-year rate, or a handful of variable accounts from a single investment manager, are long gone. Today's annuities offer rate guarantee periods from one to ten years, and up to 30 different investment portfolios from as many as 14 fund managers. With the newer types of tax deferred annuities you can adjust your asset allocations as markets change and interest rates change. This type of investment program can meet your investment needs as your age and your investment objective change.
Mistake #5: Failing to Properly Designate Ownership, Annuitants and Beneficiaries
Unless you are well versed in IRS rules concerning ownership, annuitant designation or beneficiary designation, you could cause needless problems in transfer, unnecessary taxable income, and failure to continue income tax deferral and excess payment of estate taxes. For example, many people do not realize that once you name an annuitant, the IRS will not allow you to change that designation. This could result in a 10% tax penalty on the income if the annuitant were to need income, and was under age 59 1/2. Another common mistake is to name a trust as the beneficiary. This would cause the proceeds to become immediately taxable, rather than allowing your spouse continuous tax deferral for up to an additional five years.
Mistake #6: Not Using A Full Time Annuity Specialist
Most annuity investments are purchased from captive insurance agents who offer limited fixed annuities, or from banks with little investment and planning expertise. We offer a wide range of annuity investments from a long list of the top companies in the industry. We will work with you to find the investment that suits you and your financial needs. We also continually monitor the market and provide you with up to date information. We would be glad to assist you, whether you are considering an investment at this time, or if you already own an annuity and simply need someone to answer your questions. We are also qualified to help you look at the big picture, ensuring that any annuity purchase makes sense from a taxation, planning and investment standpoint.
What are some of the common mistakes investors make when purchasing an annuity?
THE MOST COMMON MISTAKES MADE BY ANNUITY INVESTORS
Mistake #1: Lack of Concern for Quality of Company
Many annuity investors fail to properly research the ratings of the insurance company issuing their annuity contract. Annuity owners commonly fail to keep updated on the company after they have made an investment. This is especially important with a fixed annuity because the insurance company has your money invested in their general account and guarantee both the principal and interest. In a variable annuity it is not nearly as important since the money is in separate accounts invested according to the stated objective of the sub-account (i.e. growth, balanced, international, bonds, etc.)
A.M. Best can no longer be relied upon as the number one authority in rating insurance companies. We rely more on Standard & Poors, Moody, Duff & Phelps and Weiss rating services in addition to analyzing the companies' investment portfolio. Our recommendation is to buy only from top-rated insurers.
If you would like a review of the ratings and ranking of your annuity company, please call us.
Mistake #2: Annuitizing the Contract
In most older annuity contracts, when it comes time to start receiving income you are forced into making a decision on what terms you want to annuitize under. Some options can be very unfavorable to the investor. For example, if you choose a life annuity that pays you a monthly check as long as you live and you die prematurely, the insurance company gets to keep the remainder of the funds, and your heirs get nothing.
Another drawback of annuitization is that you lose control of your money. Once you annuitize you cannot go back and increase or decrease the amount of your monthly check. This could be a serious problem if your annuity income does not keep pace with inflation.
Newer annuities offer an option called systematic withdrawal. This means you can set up your own schedule of monthly income that can be adjusted at any time. The remainder of your funds will continue to earn interest and when you die the funds go to your beneficiary, without the cost of delay or probate.
Mistake #3: Falling for High First Year Rates and Not Being Concerned with Renewal Rates
Many insurance companies will try to entice you into purchasing their annuity by offering a first year rate that is much higher than the going rate. After the first year the renewal rate will typically be much lower, but you will still have several years of surrender charges before you can move your money to another annuity. Approach unusually high rates with caution. Many high interest rate annuities have surrender charges that are no longer than the normal 5 to 7 years and in some cases the surrender charges never go away. Avoid these annuities and any other that restrict your withdrawals by giving you a lower rate if you move your money or don't annuitize with them.
Before you buy, look at the interest rate protection features and consider an annuity where you have the option to lock rates in for more than one year. Also, if you already own an annuity, make it a point to have your renewal rate reviewed each year by an unbiased annuity professional. Your annuity may have a bailout feature that allows you to move your money if the rate drops below a specific level. The annuity company will not notify you that the bailout feature has been triggered. We can research this for you so you can make an intelligent decision.
Mistake #4: Purchasing an Annuity with Limited Investment Options
The days of annuities only offering a one-year rate, or a handful of variable accounts from a single investment manager, are long gone. Today's annuities offer rate guarantee periods from one to ten years, and up to 30 different investment portfolios from as many as 14 fund managers. With the newer types of tax deferred annuities you can adjust your asset allocations as markets change and interest rates change. This type of investment program can meet your investment needs as your age and your investment objective change.
Mistake #5: Failing to Properly Designate Ownership, Annuitants and Beneficiaries
Unless you are well versed in IRS rules concerning ownership, annuitant designation or beneficiary designation, you could cause needless problems in transfer, unnecessary taxable income, and failure to continue income tax deferral and excess payment of estate taxes. For example, many people do not realize that once you name an annuitant, the IRS will not allow you to change that designation. This could result in a 10% tax penalty on the income if the annuitant were to need income, and was under age 59 1/2. Another common mistake is to name a trust as the beneficiary. This would cause the proceeds to become immediately taxable, rather than allowing your spouse continuous tax deferral for up to an additional five years.
Mistake #6: Not Using A Full Time Annuity Specialist
Most annuity investments are purchased from captive insurance agents who offer limited fixed annuities, or from banks with little investment and planning expertise. We offer a wide range of annuity investments from a long list of the top companies in the industry. We will work with you to find the investment that suits you and your financial needs. We also continually monitor the market and provide you with up to date information. We would be glad to assist you, whether you are considering an investment at this time, or if you already own an annuity and simply need someone to answer your questions. We are also qualified to help you look at the big picture, ensuring that any annuity purchase makes sense from a taxation, planning and investment standpoint.
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