Annuity Basics
What does annuitization mean?
The process of converting the annuity into a guaranteed income stream for the rest of their lives.
What is a participation rate?
The percentage the contract owner takes part of the positive returns of an index
What is the earliest age someone can draw their Social Security Benefit?
62
Name 3 ways to fund an annuity.
IRA, Roth IRA, 401K, 403b, cash, CDs, brokerage accts, annuities, cash value from life insurance, bank accts
Name 3 reasons why someone would buy an annuity.
Guaranteed income, tax deferral, principal/market protection, RMD planning, non-attachable asset, LTC, enhanced death benefit, accumulation, guaranteed interest return, etc.
Fixed, Fixed Indexed, & Variable
What is the Income Base Value on an Income annuity?
The imaginary value used to calculate how much income will be received.
What does RMD stand for and what is it?
Required Minimum Distribution
A specified percentage of required withdrawals from qualified accounts that you are now being forced to pay taxes on once hitting the specified age
True or False: You can fund an annuity with the cash value from a life insurance policy.
True it would be considered a 1035 exchange
What is the main con of a Fixed Indexed Annuity.
Liquidity (surrender schedule)
What is the 'surrender schedule' in an annuity?
The schedule is based on amount of years in the contract and every year there is a specified percentage the contract owner will be penalized for withdrawing over the free withdrawal amount or terminating contract too early
What does the 'roll up rate' do in an income annuity?
It is the percentage the Income Base Value will grow every year income is deferred.
What does full retirement age mean in regards to social security benefits?
The age where there is no cap on how much income you can make and no longer withhold an amount from your social security benefits
What is the average percentage that someone needs to keep liquid for the annuity to be suitable?
50%...some carriers will take higher percentage
Which type of annuity is considered a 'CD alternative'
MYGA/Fixed annuities
What does 'period certain' mean in regards to annuity payouts?
Payouts occur over a specified period of time and end once that specified timeframe has been reached
Fixed Indexed Annuities are protected from market downturns and guarantee no loss, what would make a FIA have a negative return?
Rider fees. If the index return is negative they would receive 0 interest for that year, but if there is a fee it comes out of the account value causing a negative return for the year
What is SSDI?
Social Security Disability Income which is for people that qualify for disability
What is the Florida Guaranty Association?
It guarantees up to $250,000 to be protected if the annuity carrier goes under
Can not be talked about unless ASKED!!!
What is the main difference between a variable annuity and a fixed indexed annuity?
Variable annuities invest directly into the stock market offering higher growth but also high risk of loosing money, while fixed indexed follow a market index over a course of a year offering not as high of returns but guarantees the account will not go negative during downturns
What does the 'maturity age' mean in an annuity contract?
It is the age the contract expires, requiring you to annuitize the contact starting the guaranteed income stream or withdrawal the full account value.
True or False: All annuities are RMD friendly.
False...some will not allow ANY withdrawals the first yr even if its for RMD
What age does someone born in 1960 have to draw their RMDs?
75
What are the 5 objectives we ask clients to rank from least to most important, to help determine which annuity would be suitable for them?
Accumulation, Income, Death benefit, LTC, and Non Attachable
True or False: Income payouts from an annuity is tax free.
False...if it is NQ only the interest is taxed but Q is taxed on full amount