Date posted: April 30, 2010
Opinions on death benefit annuity riders are wide-ranging. While your monthly payments will be smaller with such a rider, your money is not lost to your family should you die sooner than expected. When the annuitant dies, any listed beneficiary will receive the annuity’s proceeds. You can name one or more people, a trust, or even an organization as your beneficiary. Beneficiaries can take the annuity money in either a lump sum or as periodic payments. Since many annuities defer taxes, the beneficiary will have to pay taxes on any money earned above the initial deposit. The IRS gives beneficiaries five years before they have to start collecting their annuity money and paying the corresponding taxes.
There are a lot of annuities that offer a “step-up” on the yearly anniversary date that you purchased the annuity. Your annuity value would increase to the highest amount it was at on any past anniversary date. Some annuities guarantee interest compounded annually at 5% to 7%. There are variable annuity products which offer a combination of both of those benefits, so you would get the greater of the “step-up” or the guaranteed interest. If you happened to die at a time when your annuity was down, your beneficiaries would receive the highest anniversary or interest rate amount from your annuity. Death benefits typically cost between .05% and .50% in yearly expenses.
Date posted: April 29, 2010
According to “Alternatives for the Undecided,” by Serge Troyanovsky of Financial Planning, equity linked CDs can be looked at as a sort of happy medium. Many investors just cannot decide between risky investments with potentially high returns and safe investments that lose out in bullish markets. A middle ground between the two is an equity linked certificate of deposit. These products are issued by banks and return all of your initial investment once they mature. FDIC insurance up to $100,000 draws in even more investors. The banks issuing the most equity linked CDs are Wachovia Bank, Morgan Stanley, Merrill Lynch Bank, Wells Fargo, Bank of America, HSBC Bank USA, LaSalle, and JP Morgan. Wells Fargo’s WISE Indexed CD has great qualities to offer investors.
You receive your interest as a return that is paid once your equity linked CD matures. Different products compute the return differently, but they are traditionally linked to the well-known domestic equity indexes like the S & P 500. When you compare equity linked CDs, most offer a minimum return between 1% and 3% that you’ll receive even if the markets perform poorly. These products are meant to be held until maturity, so if you are looking for an investment that is liquid before maturity they probably wouldn’t be right for you. As banks continue to sell an increasing number of equity linked CDs and investors seek this safe alternative out, a greater number of options will become available through innovation.
Date posted: April 26, 2010
In the Globe Gazette’s article “Ease the sting of tax bite,” Laura Bird gives advice to help those who were hit hard by Uncle Sam this year. For people who owed a lot of money in taxes this year, the easiest way to change that might be updating your withholding information at work. Having more withheld from each paycheck will decrease the likelihood of you owing the government tax money April 15 of next year. Tax deductible investments are also a great way to decrease your taxable income. Putting money into an annuity, IRA, or 401k will lower the amount of taxable income that you claim when filing your taxes.
If you qualify for an IRA or have an employer sponsored 401k plan, contributing to retirement plans like that help come tax time. Not everyone qualifies for those types of plans though. Compare annuities to IRA’s and 401k’s and you still get some tax relief. Most annuities are tax-deferred, so that you don’t pay taxes on any of the income you are earning until you actually start taking your earnings out of the annuity. That typically happens during retirement when your income and tax brackets are lower. Tax-free bonds and energy tax credits for appliances and work done on your home are other ways to lessen your tax burden for next year.
Date posted: April 23, 2010
Forbes Magazine authors Ian Ayres and Barry Nalebuff tell us why annuities are so important in “Insurance You Want to Collect.” While most insurance payments you receive mean that something bad has happened, such as a death or fire, annuities actually protect against the fact that you will live a long life. Ayres and Nalebuff point out that if you’re being specific, annuities should actually be called life insurance and traditional life insurance truly is death insurance. It’s an interesting way to look at things to say the least. While many people hesitate to buy annuities because of the chance that they won’t recoup all of their money, the authors believe that the purchase of an annuity is a small risk very worth taking.
There are two mistakes they think people make regarding the best annuities. It is tempting to add on a death benefit rider so that if you die soon after buying your annuity, you spouse will receive your payments throughout their lifetime. Since you receive around 15% more each month without the death benefit, it could be in your best interest to skip that instead of trying to save 15% more each month during your working years. The authors also recommend prefunding an annuity each year that you are working and starting early. The more you prefund, you can actually end up with 25% more money in your investment. Prefunding is just like a private version of social security, but it is actually fully funded by you. They believe that a great annuity product is inflation-adjusted, prefunded at a young age, and has no death benefit rider.
Date posted: April 21, 2010
Annuity rates fell in 2009, according to annuityrates.org’s article “Falling pension annuity rates are hitting annuitants say MGM.” The UK website stresses concern over falling income for those receiving annuity payments. MGM Advantage is a company specializing in pensions who believes that 2009′s falling rates are hitting people hard financially. The income received from standard annuities in the UK fell by 2.16% in 2009, according to the Advantage Annuity Index. They show a 1.33% decrease for enhanced annuity income. Although a report shows that rates have increased at the beginning of 2010, the Advantage Annuity Index shows a small decline in the first quarter of 2010.
Of course these rate changes apply to variable annuities rather than fixed annuities. Fixed annuity rates that are set over a time period will not change and affect your income stream. Even though rates are lower than they were in the past, they actually are still at a good level and should not deter any investor from looking into annuities for a future stream of income. Annuities are still a dependable and secure way to guarantee a lifetime of income payments, especially in retirement. As long as there is a rate above your initial investment, you are making money that you didn’t have before. With all of the different annuity options available, the flexibility will allow almost anyone to find a custom fit annuity for their future.