A Defination of Terms and other Information for your review
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Want a plan with no setup costs for your church or school employees or your individual plan?: We have the answer for you, most retirement plans have some high setup cost for an employer to offer such plans, but our plans have no setup costs or monthly fees, frontend loads or rearend loads. They are no load plans. Employers find these to be a great benefit to offer as very appealing because there is no cost to them to offer them as they complete for quality employees.
Bonus options: Most plans offer bonus options from up to 10% for the first year and some plans up to the first few years. This varies from plan to plan in addition to current paid earnings.
Indexed Annuities: please refer to your own specific contract for the exclusions, additions, use and definitions of the terms, and information given below. This information is of a general nature and may vary some with your specific contract.
Indexed Annuities are the new product of choice of today for acumulating retirement funds. This new product can be used to fund your 403b, 401k, SEP, IRA, Roths, and other plans, both qualified and non-qualified. What makes this new product so unique, is the fact that it offers a base guarantee so that your principle and earned interest are secure from loss. A mutual fund has no guarantee, thus, your principle and earned interest are always at risk for loss. Here are our two most popular plans, currently: the first offers a guaranteed first year with a yearly growth ceiling cap which could offer a much greater return, depending on your choices thereafter; the second offers a first year guarantee but has no ceiling cap for yearly growth. There are a variety of terms so that you are assured of the right one to meet your investment expectations. Contact us for current interest rates and guarantees.
If you are funding a 403b plan for a religious organization or non-profit organization with the Indexed Annuity, there are no setup costs or monthly administration fees for our clients, which others charge. There are special advantages for clergy you should know as your review this option. (call us for this timely info). Click here to review the 403b.
For our commercial business clients, we offer some special benefits with this product, as well, to assist you with funding for the business owner and employees through options that should meet your planning expectations and business continuation concerns.
To assist you with our discussion of Indexed Annuities, lets start with the basics and then work up to some more complex concepts and terms. If you have questions, please feel free to contact us; we are here to assist you as you consider what is best for your present position in life and what your expectations are for your financial future.
What an Annuity is:
An annuity is a contract between you and an insurance company that allows your earnings to grow and compound tax-deferred. This is a powerful benefit that you can use to help you accumulate wealth for your retirement or other long-term financial goals. The word annuity literally means "annual payments". When you buy an annuity, the insurance company agrees to pay you an income for a specified period of time. Whether these income payments start right away, or at some future date, determines what type of annuity you have; either deferred or immediate.
How an Annuity is structured:
In general, there are three parties to an annuity (plus the insurance company): the owner, the annuitant and the beneficiary. The owner controls incidents of ownership in an annuity. They have the right to the cash surrender value. They can also name the beneficiary, assign the policy and make withdrawals. Oftentimes, the owner is also the annuitant. The owner may be an individual or a trust. Most importantly, the owner is the person (or trust) who receives the tax benefit of the annuity during the accumulation phase of the contract. (The accumulation phase is the period of time that the annuity is growing; the income phase is the period of time when you are taking money out of your annuity.) The owner does not pay taxes on the income earned (the tax-deferral) during the accumulation phase; however, owners do pay the taxes on withdrawals or income when it's received during the income payout phase. The owner is normally the person who receives the payments during the income phase, but they can also assign these payments to the annuitant. The annuitant is the person on whose life the terms (depending on the particular annuity, it could be their age, gender or state of residence) of the annuity are measured. Again, the annuitant may also be the owner. As in other life insurance policies, the beneficiary is the recipient of the death benefit, should it be paid out.
The Power of Tax Deferral:
The ability to shelter your earnings from the impact of taxes is one of the most powerful tools available for helping you to build and preserve wealth for retirement or other long-term goals. Without the continuous drag of taxes, your money grows faster. Faster growth means a larger nest egg. These are the principles that make it work. First, your principal earns interest each year. Then, your accumulating interest earns interest. Finally, the money you would have ordinarily paid to the IRS in taxes (and possibly to state and/or local agencies) remains in your annuity to earn even more interest for you. Over time, the additional interest earnings on these tax savings can really add up. Depending on your tax-bracket, tax deferral can mean as much as 30% to 40% faster growth of your money compared to a taxable account paying the same rate.
Questions you should consider before purchasing an Indexed Annuity:
Since every equity-indexed annuity is different and we offer many, our clients should be prepared to understand the answers to the following questions before deciding if they should choose an equity indexed annuity to fund their retirement plan.
1. What is the annuity's term? In general, equity-indexed annuities (and other annuities, for that matter) require tying up your money for anywhere from five to fifteen years, which offers a long term return to meet retirment goals.
2. What exactly do you earn when the market goes up? Indexed annuities credit you with anywhere from 50 to 100% of the price gain of the market -- excluding dividends. Since you're not earning dividends, you won't earn as much as you might by investing directly in the market, but neither do you have the risk; you have a base guarantee. The percentage rate you earn (called the participation rate) may change from year to year. Make sure you check with us about this as it varies from product to product.
3. How does the company calculate your gain at the end of the term? Some indexed annuities use the market price on the day your annuity matures. Others look at the market price on each policy anniversary and pick the highest one. Some policies credit you with a portion of each year's market gains -- if there are any. Others simply average the gains month to month. Make sure you ask which method the policy you're considering uses.
4. Are there any limits to how much you can earn? Often, indexed annuities put a cap on how much you can earn during the year, but some do not. (Some policies also allow the company to change the cap each year.) If, for example, your policy has a 12% cap and the market rises 15%, you'll only get 12%. Most plans offer bonus 7% to 10% in the first few years and vary from plan to plan.
5. What happens if stock prices decline? If the market drops one year, below your guarantee base, you'll be credited with no gain that year except your guaranteed base amount. Please note however, you will not loose earned interest or principle as you would with a mutual fund. If you could take all the minus out of the mutual fund plans just think what your return would offer. (Of course, if you "surrender" before the maturity date, you'll have to pay the surrender charge, so you may end up taking a loss.) The crediting method the company uses will determine what happens in subsequent years, especially if the market doesn't return to previous levels.
6. What happens if you want to quit the annuity early? Some policies will give you the guaranteed minimum return, while others will credit you with all or even part of your earnings, minus whatever surrender fee was established when you bought the policy. Getting out early may mean taking a loss on your retirement plans.
7. What if everything crashes? Indexed annuities do carry a guaranteed minimum return, but only if you keep the policy until its maturity date. The guaranteed return is usually at least 3% none are less then 0% so there is no loss of principle if the market drops, but that may not be 3% of what you paid into the policy in the first place. Some companies guarantee you'll get at least 3% of 90% of what you invested. Also make sure you check on how that minimum return is computed. If, for example, you get at least 3% compounded annually, that works out to a little more than a 10% gain after seven years. GUARANTEED!
8. What is my expected term? A longer term will yield a higher return with a shorter term yielding a lower. Most plans have a decreasing surrender charge that can be of assistance if an early withdrawal is necessary.
9. The company financial strength and stability? We use only A rated companies or better by A.M. Best, and Standard & Poors ratings services. If you have a concern about this, please ask us about the particular company we are discussing.
10. Withdrawal and flexibility concerns? Annuities can be withdrawn without tax penalty after you are 59 1/2 years old. You must start withdrawals no later than April of the year you turn 70 1/2. We also offer withdrawal terms of interest only or 10% without penalty, after age 59 1/2, per year. Please note the glossary for a better understanding of the annuity terms.