Annuities

The golden years should be, well, golden. You shouldn’t have to worry about the market cracking open your nest egg before you’re ready for it to hatch. We’ve seen dramatic market downturns recently, some far deeper than those before. With new automated stock trading technologies and more vicious traders, playing the market is scarier than ever.

Let’s talk about some of our favorite products, structured with the options we use most often for our clients. Yes, there are many options for annuities, but these questions fit our clients the most.

What’s the difference between an annuity and my retirement account?

The main thing to understand is that an annuity is not an investment product. Let me repeat that:

Annuities are not investments.

Yes, they take a chunk of money and they grow it, so you’re investing in something, but they are not investments according to the SEC and FINRA, the main regulators of financial advisers and stock brokers. Why? Because they don’t have direct placement in the stock market.

Wait, I thought this paid out like an investment…

Yes, it does. And that’s the beauty of it. Because it is life insurance at its core, it is removed from the brunt of stock market fluctuations. So if you’re trying to supplement your retirement with a mutual fund and the fund takes a beating just before you need it, there’s that much less to draw from. With an annuity, when the market takes a hit, your available amount doesn’t change.

In addition, there are many options available to get the balance back if the annuitant (essentially, the insured) or their spouse dies.

So yes, it acts like an investment. It looks a lot like one. You invest your money into it, but you don’t have to monitor it like your investments.

Okay, so it’s life insurance. Don’t I have to have a health exam?

Nope. It’s not life insurance like that — you die and your beneficiary gets money. This is built to acquire money and pay out until you die.

The company that write yours annuity, whether it’s Nationwide, Integrity Life, or one of the other myriad companies we offer, looks at your age and determines how much they can pay you for your investment, while sustaining the amount and growing it from their other investments.

Because they do the heavy lifting for allocating how to build the funds and they’re paying until you die, no health exam is needed.

This sounds pretty good — what are the disadvantages?

The main disadvantage is that depending on the kind of annuity you have, you might not have access to all of your money for up to 10 years without a penalty. Also, withdrawals before age 59½ are met with a penalty, similar to an IRA.

And the advantages?

The advantages are numerous:

If it’s an indexed annuity, your cash value grows with the market but stays right where it is when the market goes down. You get 5-10 years of growth before you can start drawing from it.

If it’s a single premium immediate annuity (SPIA, if you will) you start getting your retirement checks from it right after it is approved and processed.

With any of them, they grow tax free. Withdrawals are taxed as regular income, so they’re heavily tax advantaged in that only what you take out is taxed.

How do I know if an annuity is right for me?

That’s an excellent question, and it’s a common one.

The best way to find out is to call us, set an appointment, and have a complimentary financial review or just submit a quote request. At Bow Tie Financial Group, we pride ourselves in making sure your needs are met and your questions are answered.

In the end, annuities are excellent tools for your financial toolbox. We’re more than happy to help provide guidance and help in finding out if they’re the right one for you. Even if they’re not, we have other options which can help your golden years shine incredibly.

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