Do You Understand the Common Terminology Surrounding Annuities?

Annuities and wealth management can be overwhelming to understand. Not everyone has the same comprehension of the information relating these concepts. This is why we have put together a run down of basic terms relating to annuities. By learning the basic definitions of common terminology surrounding annuities you will be able to better follow the process, procedures and concepts relating to investing with annuities and essential wealth management.

Financial, Investing, and Annuities – Terms to Know

Backup Withholding: When the taxpayer identification numbers rules are broken by a person, the government may take a mandatory withholding called a backup withholding. The IRS may also impose a backup withholding on an individual for other reasons. This withholding is claimable by a taxpayer as a credit on federal income tax returns.

Beneficiary: The beneficiary of annuities  include the people or  person deemed to receive the payments that are due in the event of the death of an annuity owner. It is for this reason that annuities are considered to be an investment providing peace of mind and giving investors the knowledge that their family is protected.

Bonus Rate: During the guarantee period (the first year) of annuities, there is an extra interest payment made as incentive to promote switching of business from one to another policy bringing in new business.

Certificate of Deposit (CD): A “low risk” means of investing with low returns and often a withdrawal penalty, obtained through savings and loans and banks which are short to medium in term, interest bearing and insured by the FDIC.

Charitable Annuities: Also known as  Gift Annuities, these contracts are between a donor and a foundation whereby the foundation ensures annuity payments. This is different from a trust as a trust makes annuity payments from only its assets. There are two things about the charitable annuity that make it attractive to investors. The investor can decide whether they want immediate annuity to be paid no later than one year from the gift date or defer the annuity to a specific date. Also, income derived from the annuity could be at market value or higher giving way to potential investment return.

Although having a general understanding of the terminology relating to annuities and finance will be beneficial in your being able to negotiate the investment waters, it is still important to review all of your contracts and documentation regarding your investing matters. It is also vital that you talk with your investment advisor regarding your specific investment plan in order to keep abreast of the current status of your finances.

If the financial term you are looking for isn’t here, continue to check our annuity website. Our list of annuity and financial definitions will continue to grow (of course, according to the alphabet). By subscribing to our RSS feed, you’ll be informed when a new post is added and you’ll be able to conveniently increase your annuity and financial investing terminology knowledge.

Knowledge is power, and the more you educate yourself about annuities, the better prepared you will be when you are reading agreements, contracts, or annuity reviews.

Lump Sum Annuities: Understanding Common Terms and Definitions – B, C is a post from: Lump Sum Annuity

Have you just begun the research process surrounding financial planning, retirement, understanding annuity options, or other areas of wealth management? We are aware that not everyone is at the same stage of the game. In order to break through the confusion often encountered when dealing with financial planning, we are highlighting common terms you need to know when dealing with a lump sum annuity, fixed annuities, and other financial terms.

Lump Sum Annuity Common Terms and Definitions: A

Accumulation Phase: Understanding the accumulation phase, or the period of time when an annuity owner can add tax-deferred money to the plan, is key when preparing for your retirement. During the accumulation phase, you should have set goals in order to keep on track of exactly how much you’ll need to contribute annually in order to meet your financial goals.

Accumulation Unit Value: During the accumulation phase (defined above), your accumulation unit value is the net asset value after subaccount management fees have been subtracted and all income and capital gains have been included. Your insurance company should provide accumulation unit value (or AUV) tracking along with performance summary sheets.

Annuitant: When you see the word annuitant in your contract, the term is referring to the annuity owner (you). The annuitant’s life expectancy is the figure used to calculate the payment amounts.

Annuity: In simplest terms, an annuity is a contract provided by a life insurance company to offer investment income which is tax-deferred until time of withdrawal. It is essentially, the agreement by which the plan participant receives predetermined payment amounts. Depending on the type of contract, or type of annuity, the payment period can be for a lifetime or a number of years.

Annuitize: When an individual trades the value of an annuity in return for a certain agreed upon payment amount for a specified time period, this is called annuitization.

Anticipated Initial Investment: The amount you are planning to invest in your annuity at the beginning of the annuity contract is described as your anticipated initial investment. Many insurance companies have minimum initial investment amounts for the annuities they offer.

Asset Protection Trust: An APT is gives an individual, who is called the trustor, fiduciary control of property to a trustee (or institution). This is generally connected to beneficiaries and is used with investments and annuities when planning how investments will be distributed to them.

Assets: Your assets include all of the finances placed under the management of a particular company. These can include real estate, annuities, investments, stocks, bonds, and cash.

Asset Manager: The person placed in charge of decisions regarding assets, such as annuities, stocks, bonds, real estate, and other investments.

Do You Have a Thorough Understanding of Investment and Lump Sum Annuity Terminology?

These are common annuity related terms and definitions to assist you as you explore investments, annuities, and other wealth building, protection, and management tools. Reading over your contracts and understanding the terminology is the first step to responsible and prudent financial strategies.

If the financial term you are looking for isn’t here, keep checking back. Our list of annuity and financial definitions will continue to grow.

Lump Sum Annuity – Understanding Common Terms and Definitions: A is a post from: Lump Sum Annuity

If you have a pension when you retire, you will most likely be faced with the choice of taking a lump sum annuity. While this may seem to have its advantages, you may be surprised at how much taking a lump sum payment instead of rolling the funds into a different investment can hurt you if you don’t know what you are doing with it. Here are some reasons why it is important to create a budget and speak with a financial advisor before you do anything with the money in your pension.

What are you Going to do with Your Lump Sum Annuity?

Deciding to take a lump sum annuity can be a wonderful thing, right? After all, there are so many projects, bills, and debts you can spend it on. You may use your cash for:

• Medical expenses
• A new house
• A new car
• That dream vacation
• A college education

Beware of this kind of mentality.  Receiving a lump sum annuity is, for many, treated the same as a sudden windfall, a tax return, or a lottery winning. If you splurge foolishly, what will you be left with? You may have gotten rid of a few debts, but you have nothing to live off of. You then must either rely on credit cards to get by or work, just as you had before.

Financial Planning is Important

When you must decide whether or not to take a lump sum or annuity, it may be a hard decision to make. If you choose to accept a lump sum, you must be diligent about your expenses so you will be able to take care of yourself during retirement. There are a couple of paths that can make it easier for you to budget your money.

• Instead of spending all of your money at once, roll it over into a plan that offers you a monthly payment. This will allow you to invest your money in stocks or mutual funds, which will increase the amount of cash you have in the account, but still give you some income every month to pay your bills with.

• Purchase property and then rent it. You can live off of the extra money you make each month and when it comes time to sell your property, you can sell it for a profit.

These types of investments allow you to have monthly income while still being in control of the lump sum. You can decide how and when to invest your money.

However, even though you are in control of the lump sum annuity, you may need help choosing the best investments. This is where a financial advisor can come in handy. A financial advisor can help you budget your money so you have enough to live on while investing the rest of the lump sum. He or she will ask you questions in order to determine whether you are looking for a long term increase in the amount of your lump sum or a short term investment that will provide you with a steady monthly income. When the financial advisor has determined what investments will work best for you, he or she will explain how the investments work and help you get started.

When determining whether or not you want to take a lump sum or annuity from your pension plan for retirement, it is important to consider what you will do with your money. If you want to be in control of your own financial decision, a lump sum may be the choice for you.

Can Taking a Lump Sum Annuity Hurt You? is a post from: Lump Sum Annuity

The very idea of taxes is not usually a favored topic or something we like to think about. Making decisions about your tax situation are not always easy (especially since it is one of the most off putting subjects to bring up), but when it comes to your annuities, there are certain things you’ll need to be aware of.

The appeal of any annuity is the fact that taxes are deferred on the income that is invested. Unfortunately, deferred is simply another word for putting off the payment of taxes owed until a later date. This is true for each and every type of annuity, including  lump sum annuities or variable annuities.

Seasons of Deferred Annuities

There are two essential seasons when it comes to annuities that allow deferred taxation. The accumulation season and the distribution season. Seasons are simply a more elaborate way to explain that during the accumulation period, the money invested is allowed to grow and mature with interest without having to pay taxes.  The distribution period is when the payout is made. This can be in a lump sum, i.e. lump sum annuity, or over a more extended period, i.e. lifetime. The smaller payouts are scheduled on a monthly or annual basis. In either case, taxes must be paid once the distribution season has started.

How Lump Sum Annuity Tax Payment Works

With lump sum annuities you will receive all of your money at once.

As an example:

• You invest $50,000 in RenoTransLife  Annuity that will be worth $200,000 when you are ready for retirement at the ripe age of 62.
• The time comes to accept the lump sum of $200,000 and according to the federal government you just “earned” $150,000 for this year.
• Because you “earned” it, you have to pay the going rate for that particular tax bracket during that year.

Taxes to Pay on Annuitizing

If you have chosen the route of scheduled annuity payments, or annuitization, then you will pay in your current tax bracket. You will not have to pay on the entire amount accumulated at one time. Taxes will be assessed by the amount you have earned during the calendar year.

An example:

• You invest  $200,000 in a fixed annuity which will payout $1500 a month starting at the age of 62.
• The federal government, actually the Internal Revenue Service, estimates that people live an additional 22.5 years after retirement so the total amount for your annuity will be $405,000. The calculation is 12X1500X22.5.
• The total minus your initial investment equates to earnings of $205,000.
• The IRS considers your $1500 a month to be made up of 49% of money being returned to you and the other 51% being actual “income”.  This results in you paying taxes on a portion of the annual $18000 payments.

Regardless of which type of investment is made, lump sum annuity or variable annuity, if you do not make it to the ripe age of 62 your money does not simply disappear. Your beneficiary will receive it and pay the taxes required by the IRS.

For more information on annuities and retirement strategies, continue to follow our website.

Understanding Taxes Related to Annuities is a post from: Lump Sum Annuity

So, you are thinking of retiring and your employer has given you a choice as to how you want to receive your retirement money. Do you want to receive your payout in a lump sum or would you like them to pay you a much smaller amount every month for the rest of your life? This may have you confused about what to do. When choosing between a lump sum or annuity before retirement, here are some of the facts that you need to know.

What Will Your Retirement Check Cover?

Most people in retirement do not want to continue working full time to support themselves. That is why they invest in 401ks and retirement funds to begin with. So when you are faced with the decision of lump sum or annuity, you must first ask yourself what you are going to do with the money? Each decision may lead you to a different answer. If you are counting on that money to support you financially every month until you die, you may decide on a monthly annuity. If you plan to travel the world or invest your money though, you may want to consider a lump sum. This will give you a large amount of money to work with.

Factors to Consider When Choosing a Lump Sum or Annuity

Deciding between a lump sum or annuity can be difficult, but there are several factors you can take into consideration.

• Your Health- Annuities only pay until the day that you die. If you are in poor health, you may want to consider obtaining a lump sum. When you are making this decision, it is important to consider your partner’s health as well, because if he or she is expected to live longer than you, the monthly payment may help him or her get by after you are gone.
• Additional Income- If you receive social security checks, disability checks, or any other form of income during retirement, you may not need an annuity payment to live off of. However, if you do not have any other form of income, the monthly payment you can gain from an annuity may help you to fully enjoy your retirement. With an annuity, you are guaranteed to receive a check every single month until you die, and if it is a joint annuity, your spouse will continue to receive a check if he or she outlives you
• Cost of the Annuity- What is the interest rate on the annuity compared to the number of years you are expected to live? If you think you can get a better rate somewhere else, you may want to consider a lump sum.
• Inheritance- After you pass away, do you want to bless your children, grandchildren, friends, and family with an inheritance? Most annuities do not provide any money to beneficiaries after you are gone unless it is factored into the annuity. If you want to provide your family with an inheritance, find out if the annuity your workplace offers has this option, and if not, you may want to consider obtain a lump sum.

It is important that you consider all of the factors before making this important decision. For additional information on retirement and whether a lump sum annuity is right for you, consult with a financial advisor.

The Lump Sum or Annuity Decision is a post from: Lump Sum Annuity

When Should You Talk to a Financial Adviser?

Planning for retirement is something many people put off for years.  When the time to prepare for retirement comes, most people turn to financial advisers who can help them make the best long-term financial choices.  After determining how much to save for retirement a person must choose how they want their pension distributed after they retire.  One distribution option is a lump sum annuity.  This option allows retirees to turn their small monthly payments into one lump sum that they will receive after they retirement.  Before making a decision based on the feedback given from your financial adviser you must first decide if you should trust that adviser.

Does Your Financial Adviser Acknowledge Lump Sum Annuity Cons?

One of the jobs of a financial adviser is to educate you about the possible risks associated with any financial venture.  No investment opportunity or financial plan suggested by your adviser should be explained as a risk-free, guaranteed to work, venture.  Your financial adviser should explain that receiving your retirement in one lump sum does create some risks.  Depending on your age and retirement plan set up there might be tax implications that could affect you in future years.  Also, receiving a lump sum of money creates the possibility that it may all get spent leaving you no funds to draw on in the future and no choice but to return to the work force your recently left.

Is Your Financial Adviser Registered?

Most financial advisers have titles such as “investment adviser” or “wealth management specialist” but these titles do not necessarily mean the adviser is registered.  A registered investment adviser, also refereed to as a fiduciary, is bound by law to act in your best interest.  Once an adviser is registered they must work to secure your financial interests by providing you with financial advice that does not necessarily benefit them or their direct employer.

A financial adviser who is not registered has no legal obligation to place your needs above their needs to earn a commission or impress their employer.   While a wealth management professional or unregistered financial adviser might have as much experience and knowledge as a registered financial adviser, the contract they have signed with a broker, company, or employer legally obligates them to place your needs second.

How Does Your Financial Adviser Answer Questions?

One of the only ways for you to grow to trust a financial adviser is to find out about their professional background and their professional ethics.  The internet gives investors a discrete way to research their financial adviser, but sometimes asking direct questions is the only way to get the answers you need.  How your financial adviser handles you asking tough questions along with their responses will help decide if that adviser is trustworthy.

Ask your financial adviser how they are compensated for their services.  Does the financial adviser only receive the fee they advertise, or are they eligible for additional commissions and performance based incentives?  Some financial advisers receive money for encouraging clients to receive lump sum annuities.  Most importantly, ask your financial adviser if they are legally obligated to act in your best interest for as long as you remain their client?  If your financial adviser is unwilling to answer your questions, or refuses to disclose all of their fees, it may be time for you to consider choosing another financial adviser.

When you are making financial decisions about  lump sum annuities, it is important to speak with a professional. If you don’t understand what you are doing, costly mistakes can follow.Speaking to a qualified financial adviser that you can trust is the best route.

Lump Sum Annuities: Should I Trust a Financial Adviser? is a post from: Lump Sum Annuity

There is no simple answer as to how wise any investing in annuities would be for the single mom. This is especially true for variable annuities. It all comes down to each individual person and where they are in their financial life. These are not always viable options for investing money for retirement, however they should not be overlooked either. To know if this is a profitable investment avenue, it is best to discuss annuities in more detail with a financial planner or insurance agent. The first step of financial security and success involves gathering all of the facts and holding them up against what future financial goals are desired.

What are Variable Annuities?

Essentially it is an agreement between the insurer and the investor saying that the you, the investor, will put in so much money and the insurer will send out monthly payments. This is a fancy way of saying that you agree to purchase mutual funds that are then invested in money market accounts, bonds, stocks, or a combination of them all. The actual monetary results will be reflected by what you choose to invest in. Learning about the stock market or finding a trusted financial advisor would be in your best interest.

Is It the Same as Buying Mutual Funds?

The short answer is no. These types of annuities are meant as long-term investment strategies. Single moms looking to invest for their retirement would find these a good fit. Keep in mind that there are fees and penalty charges for removing money early. You can change stocks or specific investments within the guidelines, but removing money will cost you.

Variable annuities retain periodic payments after retirement and even after death to the beneficiary of the original holder. There is a specific Death Benefit that will payout X amount to your beneficiary should you die before making the first contractual payments. Another difference to investing in variable annuities is that the income tax is deferred until you take the money out. This means that you will not pay income tax on the money you invest.

Understand Before Investing in Annuities

For anyone considering investing in variable annuities, it is best to ask a great deal of questions. For a single mom it is even more important. One of the more important items to understand are the number of fees that are related to these investments. A one-time Surrender charge is assessed if you remove your money before a certain number of years have passed. Other fees will be acquired annually or perhaps even more often. These include:

• Ÿ  Administration
• Ÿ  Expense Risk
• Ÿ  Mortality charge
• Ÿ  Long-term care insurance
• Ÿ  Additional hidden fees.

Know what to expect by asking questions. Be aware that some variable annuities will try to lure you in with Bonus credits/money. If this happens make sure to compare their fees with other options. Quite often you end up paying for these bonus credits with higher administration fees.

Remember that there is a risk in variable annuities because the stock market does not always continue on an upward path. The good news is that staying the course over the long term allows for those ups and downs. The best a single mom can do is ask questions and weigh her options when considering investing in annuities.

Investing in Annuities: A Wise Investment for the Single Mom? is a post from: Lump Sum Annuity

A difficult economy and a frightening job market have many worried about how their money is being invested.  While smart investments have given some people the financial freedom and security they desire, not every investment ends well.   Though some people have become wealthy through carefully researched investments, quite a few have lost their entire life savings.  The reality of investment loss  is one of the driving forces behind the suspicion of annuities and payment of commissions on them. Even after researching annuities many are left with more questions and concerns than answers regarding annuity investments.  These questions are caused by the many common myths surrounding annuity investments.

Are the Sales Commissions Higher than other Products?

Annuity commissions are not higher than those of other products.  However, annuities are structured  differently. Commissions created from this type of investment are accumulated over time, with the end result being similar to other types of investments.  Annuities differ greatly from other investments in that interest is earned on the entire deposit from onset. Much like some other investment types,  annuities will cause a penalty to the investor if they request their accumulated annuity funds earlier than agreed upon. It is important that an investor only uses the money earned through the annunity in cases of extreme emergency.

Do Annuities Have a High Number of  Penalties, Over the Top Commissions and Surrender Charges?

Annuities do not have an excessive amount of penalties, commissions, or surrender charges. If for some reason the investor must part with the annuity sooner than expected, they will know the minimum return amount in advance. The return amount is included in the annuity contract, and other than commissions they will receive no less than that amount regardless of when they part with it. Annuities are designed in such a way that investors will have few surprises if they choose to surrender.  Every investor will know all of the facts before they surrender an annuity.

Are Annuities More Controversial than Other Products?

Unlike many of the other investment opportunities such as bonds, stocks and even mutual funds, annuities have fixed minimum interest rates and provide investors with more security.  There is no risk of losing the principle or interest rates.    Annuities are structured to be friendly to first time investors,  in fact annuities are one of the more simplified methods of investing with fewer chances taken. Unlike other forms of investments, annuities protect the investor and their funds by placing limits on the amount of money an investor can lose.

Investing has been a method of making money and maintaining fortunes for centuries. Knowing which of the many investment opportunities to put money, and financial future, into can be an overwhelming challenge for even the most seasoned investor. Finding out the basics about the many options you have, and weighing them carefully before jumping in, is the best measure for feeling secure in your investments. While annuities may make some investors  nervous,  they have some excellent perks in the investment world by providing investors with security that they would not otherwise receive.

Common Myths Surrounding Annuities is a post from: Lump Sum Annuity

Basics of Annuities

With the advances in modern healthcare, individuals are living longer than ever. Along with these advances though, come higher medical bills. By purchasing a type of annuity called an immediate annuity, you won’t have to worry about rising medical costs or other bills during your retirement. You will have a check in the mail every month, for the rest of your life.

How Immediate Annuities Work

In recent years, deferred annuities have become more popular for those planning for retirement. These annuities are purchased with a lump sum and are set aside for a certain number of years before retirement. When retirement begins, often ten or fifteen years later, the money that was initially invested will have grown as it gained interest. Immediate annuities are basically the opposite of deferred annuities. Instead of waiting years to see any kind of payment, the investor will receive his payments almost immediately, hence the name.

First, an investor purchases an immediate annuity for a certain amount of money. Depending on the amount and the life expectancy of the investor, payment plans are set up. The investor is guaranteed a payment, usually each month, for a certain amount. This type of financial contract allow the investor to place his money in a safe and secure place while still receiving the money he needs to pay all of his bills and take care of any emergent situations.

Lump Sum or Life Only

If you are interested in purchasing an immediate annuity, you may want to consider your options. There are two variations of this kind of lump sum annuity, and each will affect the amount that you receive every month.

• Life Income With Lump Sum Refund- This version of an immediate annuity guarantees you income for the rest of your life, and also provides for those that you leave behind. Your beneficiaries will be given the remaining portion of your money upon your death. While this type of immediate annuity can be beneficial to your family, it will lower the amount of your monthly payments.

• Life Only Annuities- If you are not worried about your beneficiaries receiving your left over money, this may be the choice for you. With this annuity, you will receive your payments, but when you pass away, the insurer will keep the remaining portion of your money. This version will allow you to receive higher payments every month as well.

Healthcare and Immediate Annuities

It is becoming more and more popular for individuals to use immediate annuities to help them qualify for Medicaid. With this type of annuity, your assets are sheltered and can not be used against you when you are applying for help with your healthcare. Many times, this process takes a lot of planning and the help of a licensed attorney, but if you can not afford to pay for health care and live from month to month, you may want to consider it.

Playing the Waiting Game

Although many individuals rush into purchasing an immediate annuity to help them budget their income, you may want to consider waiting. Immediate annuity payments are calculated based on the amount of time you are expected to live. If you wait for as long as you financially can, your payments may be higher.

Whether this type of lump sum annuity is right for you depends on your specific financial situation. If you need to budget out your money during retirement or need to invest it so it can be in a safe and secure place, you may want to consider one of these immediate annuities.

Understanding Immediate Annuities is a post from: Lump Sum Annuity

If you currently own annuities, you’re not alone. Millions of Americans are depending on annuities as a large part of their retirement portfolio. I’m sure, with the changes in the economy, and none of them looking particularly promising, you may have wondered if your annuities will, in fact, provide the retirement finances you are hoping for.

As you probably are already aware, an annuity is a contract between you and an insurance company. Typically, investors enter into an annuity contract by funding it with a lump sum. In return for your investment, you receive periodic payments from the company, along with the benefit of having this return deferred from taxes.

A blanket generalization can’t be made as to whether annuities are a sound investment strategy or not, since there are both good and bad annuities. By choosing the right annuities, you’ll help to fund your retirement lifestyle for the duration of your life, even if your other assets run out.

Because of this promising feature and the current changes in the economy along with troubled AIG, many are wondering about the safety of their annuities, and rightfully so. Keep reading…we’ve got some answers for you.

Good News for Annuities

There’s good news for annuity owners. First of all, the AIG subsidiary that sells annuities seems to be financially sound. AIG’s situation can be compared to CONSECO Holding Company that declared bankruptcy back in 2002. Although the company declared bankruptcy, the subsidiary insurers continued to operate.

Fixed Annuities

Furthermore, if your particular annuity company does run into financial trouble while you are in the payout phase of your fixed annuity, your payments should go on uninterrupted. Worst case scenario, your payments could be reduced, but it’s highly unlikely for them to stop or fail to pay completely.

Variable Annuities

In the case of variable annuities, it’s important to understand that the assets connected to your annuity contract are separate from the assets of the insurance company itself. This means that your investments are subject to changes in the market, which isn’t always a good thing. When determining your risk tolerance, fixed annuities are a much more prudent investment strategy.

Smart Investing Involves Knowing What You Own

Even though it’s highly unlikely that you’ll run into serious trouble with your annuities, it’s always wise to research the financial health of the company providing your annuities. The more you know by taking an active part in your annuities and investments, the less likely you are to run into surprises.

If you decide to seek the help of a financial advisor, be sure to work with a Registered Investment Advisor (RIA) and not a wealth manager or financial advisor. Why? Because Registered Investment Advisors are required by law to uphold the highest standards of investing and place the interests of their clients first. On the other hand, financial advisors are, by contract, obligated to put the interests of the broker-dealer ahead of the investor. Financial advisors may receive certain perks or high commission percentages for pushing certain items. Registered Investment Advisors don’t operate this way, so they are your best bet for sound financial advice.

Are Your Annuities Safe from Crisis? is a post from: Lump Sum Annuity