Guaranteed LIfeTime retirement income and Accelerated Death Benefits for Chronic Illness
“Lifetime Income Benefit Riders” are known by a variety of terms. Some companies refer to these products as “Guaranteed Income Withdrawal Benefits,” The bottom line: This rider, unlike annuitization allows the annuitant to take a lifetime income from the annuity without losing control of this retirement asset. In short, you can stop and start at any time and the account value can continue to grow. The Lifetime Income Rider assures the annuitant that he/she will never run out of money or live too long. These payouts can provide “single life income” or “joint lifetime income.”
“Chronic Illness, Terminal Illness, Confinement Waivers” are riders that provide important benefits, such as: complete liquidity after a certain period of confinement, and increased payouts in the event the annuitant experiences some degree of incapacity that prohibits him from operating independently. Other riders for inflation and death benefit enhancement are also available. Please make sure to look at each company’s riders as they differ from company to company.
Bottom line: an index annuity with an income rider and a confinement rider can make retirement more enjoyable with a lot less stress.
Money remaining inside an annuity grows without being taxed until withdrawn. Unlike qualified retirement accounts where you must begin taking out money around age 70, most annuity contracts permit the owner to enjoy the advantage of tax deferral until age 85, 90, or even later. Tax deferred does not mean tax-free; interest is taxed when withdrawn. Also, the Treasury Department charges a 10% penalty on interest, in addition to regular taxes, if withdrawals are made before age 59.
ANNUITY TAX DEFERRAL IN QUALIFIED PLANS
Annuity interest grows tax-deferred. Money in qualified plans grows tax-deferred. An annuity inside, say, an IRA is already growing tax-deferred because it is in a qualified plan, which leads some people to say a fixed annuity should not be used in a qualified plan.
This logic assumes that the main reason one buys an annuity is for tax-deferral; however, our research indicates that most people buy annuities primarily for the potentially higher yield. If your IRA choice is an annuity yielding 6% or a similar non-tax-deferred vehicle yielding 5%, which one would you pick? The decision to buy an annuity is primarily based on return, not tax benefits.
SAFETY OF PRINCIPAL
Fixed annuities do not subject principal and credited interest to market risk. A fixed annuity is as safe as the insurance company issuing the annuity. Insurance companies have an exceptional record of safety, which is why they are a safe money place.
In the event of death, the vast majority of fixed annuities pay the account value to the named beneficiary and no penalties are charged. Some annuities do assess surrender penalties at death, though a few others require the account value to be paid out over time. Therefore, you should determine if the annuity’s terms meet your needs.
If you desire, you can set up an annuity so that your surviving spouse may keep the annuity in force. The California Insurance Department recently released an annuity report that says “in a fixed annuity the amount remaining in the annuity at the annuitant’s death stays with the insurance company.” This is WRONG - it would only be true if you chose the most restrictive annuitization payout option. The insurance company DOES NOT KEEP YOUR MONEY IF YOU DIE when you own a deferred fixed annuity. We hope California fixes this incredible misstatement in their report soon!
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Safe Money Places International LLC
11611 N. Meridian St. Suite #110
Carmel, IN 46032