{ business solutions } by Greg Russell • MDIS Executive Vice President Is There An Annuity In Your Future? T
he answer would be “yes”—be- cause you may not realize that you already have one. If you plan to participate and take your Social
Security benefit, then you have an annuity because Social Security is actually an annuity, which really only means an annual payment. Do you participate in a 401(k) retirement plan? Most of them are structured as part of a “group master” annuity.
There are many types of annuities and they have been around for thousands of years. The first known annuities date back to the Roman Empire where Roman senators were given a “per annum” retirement benefit. The annuity that I am referring to for today is the most flexible retirement benefit that exists and is called the Fixed Index Annuity. Simply put, it is a financial instrument designed by insurance companies that pays an “annual” or monthly income where growth is based on a guaranteed fixed rate or, at your option, an index such as the S&P 500, Dow Jones, NASDAQ or several others. A blended portfo- lio where your allocations are divided among all of the choices is possible. Now here is the remarkable thing: You are able to capture the upside of the market and your money is protected when the market goes down. Your principal is 100 percent guaranteed. It may sound too good to be true, but it is the truth.
Here’s how that works: Because your money tracks the market, but is not actually in the market, is why you are able to capture the gains and also why the worst you can do is zero growth. Remember 2008 when the market declined 50 percent? I would have taken a zero back then, but it is unlikely that you would have to. Not only can you choose to allocate a portion into the fixed rate which guarantees a return, you also choose the crediting method, such as the monthly sum or monthly average—and the market is not going to be down every month. That presents another important feature called annual reset
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that is usually renewable for another 10 years.
• Allows you to turn on an income stream that will be guaranteed for the rest of your life. You cannot outlive it.
• Many annuities provide a premium bo- nus of eight to 10 percent, in addition to guaranteed growth and index gains.
• Should you need long-term care, the income rider doubles your income pay- ment for the rest of your life and is good for nursing home or in-home care.
• Most income riders cost from 75 to 100 basis points (one percent) per year.
which locks in your gains each year. If you are in the market and your account declines 50 percent, how much of a gain would you need to get back to where you started? If your answer is 50 percent, you are wrong. The correct answer is 100 percent. However, with an indexed annuity, your principal and new gains are locked in each year so you would never have experienced a 50 percent decline to begin with.
In most states, including Missouri, your annuity is safe. First, it is backed by the full faith and credit of the insurance company. That is why MDIS deals only with A-rated companies. Because annuities are technically an insurance product, the insurance com- panies are required to maintain high reserve levels. Second, annuities are protected by the Missouri Guaranty Association to $250,000.
An annuity receives tax-deferred growth so you will only pay taxes on the growth amount when you take it out, unless it is qualified money on which you have not yet paid taxes. With taxes deferred, more of your money is working for you. Additionally, most fixed indexed annuities offer an income rider. This gives additional options that provide more flexibility such as:
• Guaranteeing an annual return of six to six-and-one-half percent for 10 years
If you are concerned about outliving your retirement assets, don’t be. With a suitable and properly structured annuity, you and your spouse could receive an income for the rest of your life. Most annuities have a surrender schedule. This means that if you were to cancel or withdraw all of your money you would have to pay a surrender charge which typically declines or goes down over time. That’s not a problem if this money is for retirement, as you may withdraw up to 10 percent of your principal and interest each year with no penalty.
In summary, although everyone’s situation is different, an annuity can be a good fit for most people. MDIS reviews each case for suitability. But when it comes to guaran- teed growth, protection from stock market declines, and providing an income you cannot outlive, an annuity cannot be beat. It provides safe money that you can count on. How about you? Should it be a part of your financial plans? f
CONTACT MDIS at 800-944-7550 to learn more about Fixed Index Annuities and other related products and services. MDIS provides you with honest answers, practical solutions and personal service. The information represented here is general in nature and should not be taken as legal or tax advice.
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