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 'cap' rate?
The maximum interest rate for an index.
Example: if the cap rate is 8% and the index has a return of 10% for the year, you will receive the max of 8%.
What is the earliest age someone can draw their Social Security Retirement 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.
Name the 3 main types of annuities.
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 main reason an annuity application would be declined due to suitability?
Not having enough liquid assets
Which type of annuity is considered a 'CD alternative'
MYGA/Fixed annuities
What does MVA stand for?
Market Value Adjustment
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 age does someone born in 1960 have to draw their RMDs?
75
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!!!
How can RMDs effect a client's Medicare?
can increase their income for that year and could be hit with IRMAA 2 years later not knowing
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
What is the difference between Qualified and Non-Qualified Fixed Indexed Annuities when it comes to income payouts and withdrawals?
Qualified payouts will be 100% taxed as ordinary income, while Non-qualified payouts only the interest is taxed and the principal is tax free.
What is the minimum amount of years you have to be married to a spouse to be entitled to spousal social security benefits?
at least 10 years even if they are divorced... as long as they did not remarry before age 60
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
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 and tend to have higher fees.
Fixed indexed follow a market index over a course of a year or 2 years offering not as high of returns but guarantees the account will not go negative during downturns and has lower fee structures.