Fixed annuities have many benefits that allow clients to reach their long-term retirement goals. The number one fear of people now is outliving their money. They fear this more than death. Most people would rather be dead than broke. Annuities give people the ability to create a lifetime income. Fixed annuities are uniquely positioned to include all of these benefits along with being creditor-proof.
The Tax Advantage.
Fixed annuities will grow tax-deferred until the money is withdrawn from the annuity. The earnings in a fixed annuity are tax-deferred until the owner begins receiving income from the annuity. This feature allows for triple compounding. Triple compounding is when returns are calculated on the interest on the principal, the interest on interest, and the interest on the money you would pay in taxes. Many people in the financial industry refer to triple compounding as the eighth wonder of the world. This principle allows them to grow their money larger and faster because taxes are not paid until the money is withdrawn from the annuity.
Pre-tax and after-tax dollars can fund annuity products. When funds are after-tax dollars and withdrawn from an annuity account, the interest comes out first. Another term for this is LIFO Last In, First Out. The interest is taxed as ordinary income. The principal is withdrawn after interest. Since it is after-tax dollars, it is not subject to taxation. This tax deferral is a huge benefit to clients.
Qualified annuities require that the owner take distributions from their qualified annuity by April following their 72nd birthday. These are called required minimum distributions.
Once all the interest has been distributed, the principal is distributed and has no tax consequence to the owner. For qualified annuities, interest is distributed first. Distributions are taxed as ordinary income.
Liquidity.
Almost all fixed annuities have a liquidity feature. Some fixed annuities allow the client to access interest penalty-free, and some allow access to a certain percentage of the account balance penalty-free.
The most common liquidity feature is 10% of the account value. This feature allows the client to access 10% of the account value as a penalty-free withdrawal. The liquidity in fixed annuities gives peace of mind to the client, knowing they have liquid access to their money if needed.
Safety.
The third benefit is safety. By definition, fixed annuities have a guarantee of principal. The client will never get back less than they deposit into an annuity. This feature is critical as a client gets closer to retirement age. Once close to retirement, they do not have the time to recover from a decrease in account value based on a market downturn.
Return of the client’s money begins to be more important than return on their money. Safety may well be the number one benefit of fixed annuities of client close or at retirement age.
Estate Planning.
Fixed annuities have named beneficiaries which can allow them to bypass probate. This feature makes the passing of annuity assets a little easier between generations. There are also qualified and non-qualified inherited annuities. These features allow for some flexibility for the beneficiaries. The beneficiaries choose how they elect to receive proceeds from an inherited IRA.
Competitive Yields.
Yield may be the best benefit to annuities. There are many types of annuities that have interest credited in different ways. The two most popular are MYGAs and fixed indexed annuities. Multi-year Guaranteed Annuities, also known as MYGAs, look very similar to bank CDs in that they have a guaranteed specific rate of interest for a specified number of years. The interest rate of annuities is almost always higher than CDs. Multi-year guaranteed annuities have a guaranteed interest rate for a guaranteed period. This allows the client to know what they will make each year. They have guarantee periods of three to 10 years. After the guarantee period, there are several options available. Indexed annuities have their returns credited based on the performance of any underlying index. This indexed feature allows the client to have access to the market without the downside risk of securities. Indexed annuities allow the client to make a few points better than they would in a MYGA contract and not lose sleep over a downturn in the market. Fixed annuities are attractive solutions for monetary safety for your clients.
Where can I find the experts on Fixed Annuities?
There is good news! EMG Insurance Brokerage is a full-service brokerage general agency based in Houston, Texas. We know it is essential for advisors to access quality products, expert advice, and cost-effective solutions. We keep up to date on markets, trends and continually update our carrier offerings. Connect with us for guidance on how to grow your business today; we are here for you.
Donnie Clossman
dclossman@emgbrokerage.com
Director of Annuities
EMG Insurance Brokerage
Direct: (713) 507-1019
