Work with StarLife Partners to select the annuity to best meet your client’s needs. There are several different “types” of annuities. Annuities have two basic properties:
1) Is the payout immediate or deferred? ; 2) Are the returns fixed or variable?
An annuity having immediate payout starts to pay the investor immediately after it is bought. A deferred payout annuity will start it’s payments at some predetermined time in the future.
A fixed rate annuity will invest in low-risk securities like government bonds and return a guaranteed rate. A variable rate annuity will base its returns on the performance of the funds where the money is invested (e.g. stocks).
Let the experts at Star Lite Brokerage provide you with the information to assist your clients in selecting the BEST product to meet their needs!
Fixed Rate Annuity:
The basic premise of a fixed annuity is that when you give a sum of money to an insurance company, they promise to pay a fixed monthly amount over a certain period of time. In the case of a “single premium immediate annuity” (SPIA), the payments begin immediately. In the case of a “single premium deferred annuity” (SPDA), the payments begin at a date of your choice (e.g. starting at retirement, etc.) Annuities are often used as tax-deferred investment, or can be used to convert a lump sum into a future income stream. Once annuity payments begin, they do not change!
You can receive your “immediate” payout payments over a fixed period of time, for example 15 years. These payments generally are a combination of principal and interest. If you choose “deferred” payout, your investment grows, with taxes deferred on that growth, and the payments begin at the chosen start date.
You can also choose to “annuitize” your investment. This means that you wish to receive payments until death. At that time, the benefit is considered complete and there is nothing left for your heirs to inherit. It does not matter if payments are made for 1 month or 40 years, they stay the same provided the company stays in business, and they stop upon the investor’s death. Annuitization is optional.
Annuitization (choosing an income stream for life) can work well for a long-lived retiree. In fact, a fixed annuity can be thought of as a kind of reverse life-insurance policy. Where a life insurance contract offers protection against premature death, the
annuity contract offers protection against premature poverty by addressing the risk of out-living a lump sum that you have accumulated. When considering annuities, you might want to remember that annuities were created to offer protection against longevity.
A fixed annuity might have advantages if you wish to generate monthly income and are extremely worried about loss of your capital (or someone else’s risk of losing their money), for example in a lawsuit. If this is the case then giving the capital to an insurance company for management might be attractive.
A variable annuity is an insurance contract based upon an investment product. Annuities function as tax-deferred savings programs with insurance-like properties; they use an insurance policy to provide the tax deferral. The insurance contract and the investment product combine to offer the following features:
Tax deferral on earnings.
Ability to name beneficiaries to receive the balance upon your death.
“Annuitization” (the ability to receive payments for life based on your life
Guarantees as provided by the insurance component.
A variable annuity invests in stocks or bonds, has no predetermined rate of return, and offers the possibility of a higher rate of return when compared to a fixed annuity. Gains (appreciation, interest, etc.) from your annuity are not taxed until money is withdrawn. When you retire, you can choose to have the annuity pay you an income (“Annuitization”), based on how well the underlying investment performed, for as long as you live. The insurance portion of the annuity also may provide certain investment guarantees, such as guaranteeing that the full principal (amount originally contributed to
the account) will be paid out on the death of the account holder, even if the market value was low at that time. Unlike an IRA, you may put as much money into an annuity as you wish.
A variable annuity is especially attractive to a person who makes a lot of money and is trying to save aggressively for retirement.