The annuity in its simplest form is a contract between you and the issuing insurance company. Annuities in rare occasions can be a useful place to invest some money if you’ve exhausted all other tax-deferred retirement plan options, but you really need to do your homework. In many cases, it may be better to buy a mutual fund outright in a taxable account. There are numerous insurance companies out there feeding off of the uneducated investor by collecting surrender charges, loads, and other bogus charges. Don’t let yourself be one of those victims.
An annuity can have an impact that reaches far into your financial futureYou have to think ahead because, in most cases, you can’t reverse your decision.
Although the idea of income for life sounds great, there is one huge pitfall that most annuity salesmen forget to mention. Once you annuitize your contract, the contract is frozen - your decision is final.
Let’s look at an example:
You put $264,000 into an annuity at age 60 and accept the insurance company’s offer to pay you $1,000 per month for the rest of your life. You will have to live until age 82 to break even on the contract. If you live past age 82 the insurance company must continue to pay you the monthly check, but if you die before you reach age 82 the insurance company keeps the remaining funds. So even if you die as early as age 63, the insurance company keeps the remaining balance of your $264,000. Many investors find this hard to swallow. Nevertheless, prior to selecting payout, they have to decide whether annuitizing will be beneficial - and, ultimately, this depends on how long they think they will live.
Let’s look at the example from the article I read, this is what they are selling you, this is how they are stealing your hard earned and saved money: “For example, with interest rates recently at 4.56% on a 20-year Canada bonds, a 65-year-old who buys an annuity with a 15-year guarantee on $100,000 capital will receive ANNUAL (emphasis on me) income of $7,300 to the time of his or her death, which is the equivalent of a 7.3% annual return”
Thos sounds good?? If you do all above, investing your own money in the same bond you will have the same return AND you still have the capital!!!!!
“The example of a 75-year old who buys a 10-year guaranteed annuity on a $100,000 capital base with recent long-term interest rates. His or her ANNUAL (emphasis on me) income (and this example is not accurate as female annuitants receive higher incomes) would be 9,333
It you take $100,000 divided with 10 years gives you $10,000 per year. IF you invest that money in any kind of investment which gives you some return you are better of. It just doesn’t make sense to me why would anyone hand over their lives savings without some REAL benefit.
Take the $100,000 and invest it in a Segregated Found (if you’re uncomfortable with Mutual Founds) just because they have a guarantee so even in the down markets your money is guaranteed (and I will explain how Segregated Founds Work) at a rate of return of 6% (what is obtainable) you would have an annual income of 6,000 so you would have to use still 3,333 a year to make up the difference up to 9,333. In a 10 year period that’s about $34,000. If you deduct $34,000 from $100,000 you still have $66,000 after 10 years. If your investment has a better return you’ll have more of your capital.
This is what the bank does:
They take your $100,000 capital what you just invested in annuity, invest you money in credit cards with 18%-28% a year. Their return on one year is a min. of $18,000 and then they give you $9,333 and on top of that you loose your capital.
I really wonder who’s best is this? Yours? Or the Bank? Judge for yourself!
Although the idea of income for life sounds great, there is one huge pitfall that most annuity salesmen forget to mention. Once you annuitize your contract, the contract is frozen - your decision is final.
There are always dangers in putting all your savings into just one type of financial product. What happens if you need extra cash quickly for a medical emergency? If all your money is in an annuity, you won’t be able to get the extra money you need.
Create your own annuity from investing your savings: You could invest in very low-risk investments that will give you a guaranteed cash flow. It’s like having regular annuity income, but you don’t have to lock your money in at a lower interest rate. Just make sure you can get enough income from your investments. Even Guaranteed Investments Certificates (GICs) and government bonds are better then annuities. Take control of your capital. It’s your hard earned money. If you are not really into investing find someone you can trust to take care of your future, someone who really wants YOUR best. A financial expert can help you find the best strategy for your own situation.
April 21, 2009
Protect Your Capital with Annuity
Choosing the Right Annuity For Your Retirement Fund
In these days of economic stress, tumbling financial markets and colossal losses to various retirement and pension funds, annuities have caught the attention of many concerned investors. Annuity sales were originally expected to top $200 billion in 2009 but first quarter activity indicates that figure could be conservative as investors seek to supplement their retirement funds and acquire guaranteed payouts.
An annuity has distinct characteristics. There are no other investments that can provide the owner such substantial deferred tax advantages along with guaranteed payments, regardless of market activity. Annuities have flexibility and can be tailored to meet the investor's needs. While early withdrawal penalties from annuities can be punitive, the typical annuity investor selects an option that achieves the desired goal and holds other funds in reserve.
Annuities have been around for a long time. There is a belief that a form of annuity was originally created during the Roman Empire and later emerged in Europe around the 17th Century. The Pennsylvania Company for Insurance on Lives and Granting Annuities was the first American company to market annuities. During the Great Depression, many investors viewed insurance and insurance products with great favor. Annuities blossomed in the 1930's. Those early 20th century annuities had many similarities to some of today's products, which have expanded in scope to meet new investment strategies and opportunities.
Today, there are four basic types of annuities; Fixed Annuities, Immediate Annuities, Equity-Indexed Annuities and Variable Annuities. As with any investment, the client must define their investment goals, assess their risk comfort level and then choose the annuity that best fulfills these criteria. Generally, Immediate and Fixed Annuities are the most conservative while Equity-Indexed and Variable Annuities are more aggressive.
The Immediate Annuity is safe, can yield a lifetime payout and is very popular as a vehicle to supplement other retirement income. With an Immediate Annuity, the insurance company guarantees the investor a fixed rate of interest from a certain period of time or until the investor dies, whichever time frame is longer. A typical Immediate Annuity could be described as Life with a 10-year period. As soon as the lump sum payment is received, the monthly payments from the insurer begin. These payments continue for 10 years or for the remainder of the investor's life, whichever is longer. If the investor dies before 10 years, a beneficiary receives the payments for the balance of the 10-year period. This investment is not affected by market conditions and is popular because of the stable monthly payment.
With a Fixed Annuity, the investor makes a lump sum investment with an insurance company and determines the amount of time of the investment. The insurance company guarantees a fixed rate of return for the life of the investment. When the time expires, the investor can withdraw the principal. Most Fixed Annuities permit the investor to withdraw between 10 and 20% annually.
