Annuities are not insured by the Federal Deposit Insurance Corporation (FDIC) and are not bank deposits. Although each state has its own guarantee fund, it should not be considered a replacement for FDIC coverage. State guaranty fund rules differ greatly from one state to the next.
Can you lose your money in an annuity?
Variable annuities and index-linked annuities both have the potential to lose money to their owners. An instant annuity, fixed annuity, fixed index annuity, deferred income annuity, long-term care annuity, or Medicaid annuity, on the other hand, cannot lose money.
What happens to my annuity if the insurance company fails?
Variable annuity funds are often placed in mutual funds in your own name. However, any funds held in the insurer’s general account could be jeopardized if the firm goes bankrupt. Any guaranteed value that is greater than the actual value of your investments falls into this category.
If the value of your annuity exceeds the guaranty association’s limits, you may be able to recover additional funds once the insurer is liquidated.
If you are getting or will receive lifelong distributions from the annuity, the computation becomes more difficult. The value of the future revenue stream in today’s dollars would be used to determine coverage. Your payouts would continue as usual if the annuity’s net present value is less than the limits. If the value is higher, payments will continue up to the limits, and you may be eligible for extra payments if the insurer is liquidated.
Are annuities backed by the federal government?
Annuities are insurance contracts that some people buy to guarantee a steady source of income. While annuities are not federally insured, guaranty associations in all 50 states cover at least $250,000 in annuity payouts for consumers if the insurance firm that issued the contract goes out of business. In New York, annuities are insured up to $1 million.
Are annuities 100% guaranteed?
The majority only promise 87.5 percent of your money plus 1% to 3% annual interest (the state minimum required guarantee). This means that if you invest $100,000, you will only be covered for $87,500. This primary protection is only effective if you keep the annuity until the conclusion of the surrender period.
Long-term contracts
Annuities are long-term contracts that last anywhere from three to twenty years, and they come with penalties if you violate them. Annuities typically allow for penalty-free withdrawals. Penalties will be imposed if an annuitant withdraws more than the permissible amount.
What are the dangers of annuities?
The following are some of the hazards associated with annuities:
- Purchasing power risk refers to the possibility that inflation will outpace the annuity’s specified rate.
- Liquidity risk refers to the possibility of funds being locked up for years with limited access.
Does Suze Orman like annuities?
Suze: Index annuities aren’t my cup of tea. These insurance-backed financial instruments are typically kept for a specified period of time and pay out based on the performance of an index such as the S&P 500.
Are annuities good for seniors?
Annuities can help seniors save for retirement by allowing them to develop tax-deferred savings for things like healthcare and living expenses. Because they start paying out within a year of purchase, immediate annuities are the best annuities for seniors. Seniors, on the other hand, should choose the annuity that will best assist them achieve their retirement goals.
Learn about annuity features that can be adjusted to the needs of seniors, such as getting guaranteed payments, deferring Social Security, and managing rising medical costs. You may provide for your family’s health and well-being by selecting the best financial solution to fit your needs.
Are annuities guaranteed?
While a fixed annuity can reduce market risk, there are other factors to consider when evaluating whether or not a fixed annuity is right for you.
- The “guarantee” of an annuity is only as good as the insurance company that issues it. In the event that an insurance company fails, state guarantees may exist, but annuities are not guaranteed by the FDIC, SIPC, or any other federal agency if the insurance firm that issued the contract fails.
- Because fixed annuity payments do not normally include cost-of-living adjustments to keep up with inflation, the value of the money you receive in payments may decrease over time. Inflation-protected annuities are available, but they are much more expensive in general.
- Once you’ve paid the insurance company your premium, it may be difficult to get your money back. The insurance company may not be compelled to continue payments to your spouse or reimburse your premiums to your estate if you only receive a few payments under a fixed annuity contract.
- If your fixed annuity is changed and you want to withdraw your money early, you may be subject to surrender charges, which reduce your returns.
Has anyone ever lost money in a fixed annuity?
“Did you know that the #1 concern of individuals over 50 is running out of money in retirement?”
“Did you know that a Fixed Annuity is the ONLY financial strategy that GUARANTEES you will never outlive your income?”
If you ask someone if they’d be interested in a retirement plan that pays a reasonable rate of return, allows them to participate in market gains without being exposed to market losses, guarantees they’ll never lose a penny if they stick to the plan, has a better-than-average chance of making a better-than-average return with no risk of loss, has few or no fees, allows some limited access to funds, and pays them a lifetime income when they decide to retire, they’ll probably say yes
Then ask someone if they’re interested in an annuity, and they’ll tell you they’re not.
If this seems familiar to you, then you, too, have most likely been subjected to systematic disinformation and “misinformation” about Fixed Annuities. The media is sloppy and irresponsible when it comes to Fixed Annuity information. Because they have a clear interest in keeping your retirement assets “under management,” Investment Advisers have done an excellent job of spreading the negative word about Fixed Annuities. That’s “bottom line” heading out the door of that beautiful office when you convert your assets to an annuity! (I’ll go into more detail about this later). In an effort to be helpful, well-meaning friends regurgitate the same myths about annuities that they’ve heard from the media and “financial planners.”
To be sure, a Fixed Annuity isn’t always the best option for everyone, all of the time, and in all circumstances. An annuity purchase should be made only after careful deliberation with an expert agent and a thorough analysis of all of your retirement assets and aspirations. But do yourself a favor and expose yourself to the truth rather than lies, distortions, and myths.
#1.) Agent commissions. This is a fiction spread by the securities business, ironically. Agent commissions from the insurance firm that issues the annuity might range from 3% to 7%. (In most cases, roughly 6%). The agent is only paid ONCE, and not with your money. Unlike a mutual fund or stock purchase, when 5% to 6% is taken off the top and goes to your broker’s pocket, 100% of your money gets into your account. When you make your first transfer, your account is frequently credited with a bonus. Consider what the financial adviser earns out of your account each year if you think 3 percent -7 percent is too much. (See also #2)
#2.) Exorbitant Annuity Fees This is yet another fabrication! With a Fixed Annuity, there are no “excessive costs.” The only costs connected with Fixed Annuities are optional, fully disclosed, and usually less than 1% per year. Variable Annuities, on the other hand, contain very high costs and are offered by securities dealers such as brokers, investment advisers, and many financial planners who make a lot of money off you every year regardless of whether your account has gone up or down. However, in the interest of full transparency (which is more than you’ll get from your registered securities dealer), Variable Annuities can make a lot of money—but they can also lose a lot of money. Is there a pattern emerging here? Purchase securities—pay hefty annual fees, “enjoy” stock market volatility, lose money, and there is no complete transparency!!! You can’t lose money in a Fixed as long as you follow the insurance company’s rules. There are no fees on most fixed annuities. ZERO. ZERO. ZERO. ZERO. ZERO Are we on the same page here?
#3.) “The insurance company keeps my money if I die.” This is yet another deception perpetrated by the financial services industry. Any money in your account at the time of your death is distributed to your specified beneficiary. Period.
“Annuities don’t keep up with inflation,” says #4. If you have a Fixed Rate Annuity, you will receive that rate for the crediting period. If you have an annuity with an old-style fixed rate, it may not keep up with inflation (historically about 3 percent average over the last 100 years). Most Fixed Annuities now provide a fixed rate option, but only as part of a wide range of crediting alternatives. In a moderately excellent market, typical returns are in the range of 5% to 9%, with an average of around 7%. An Income Rider account can easily generate returns of 12 percent to 13 percent or higher. In recent years, new plans with inflation protection riders have been introduced.
#5.) “With a Fixed Annuity, you’ll never obtain 100% of the market gain.” Because it is only partially explained, this is a half-truth. True, you don’t get 100% of the market gain, but when the market falls, you get ZERO PERCENT OF THE MARKET LOSSES. Is it a good deal? In comparison to the Wall Street Casino, most individuals prefer safety and 7% for their retirement assets.
#6. “With Fixed Annuities, there are substantial surrender charges.” Annuity surrender charges are referred to as “fees” by my security dealer friends. The securities industry is the best place to learn about fees. The fees charged by mutual funds and variable annuities are astonishing, and they can put your retirement plans on hold. A fixed annuity is a tool for arranging long-term retirement income. You should not purchase an annuity if you do not intend to use the benefits for a long time (such as your entire life). To issue an annuity, an insurance firm must pay commissions, bond fees, and other expenses. These charges are not passed on to the customer in question. Over the course of the contract, these charges are recouped on a decreasing scale. There are no surrender charges at the conclusion of the contract’s original period. In addition to any Lifetime Income Rider payments, most Fixed Annuities allow you to take a 10% free withdrawal each year. If you remove more than 10% of your account value, you will be charged a penalty for the amount that exceeds the “free” 10%. For example, if John has $100,000 in his account and requires $15,000 in year five, he will receive a penalty-free $10,000 and will pay a 5% charge on the remaining $5,000, or $250.00. Surrender charges are a serious matter that should not be neglected, minimized, or lied about by anyone!
“Fixed Annuities are difficult,” says #7. Everything in a Fixed Annuity is disclosed, unlike a mutual fund prospectus or a stock offering. It’s critical to speak with an expert agent who can thoroughly explain annuities to you. It’s true that a Fixed Annuity has a lot of “moving parts,” but a good advisor should be able to explain them to you. After all, annuities have been around for nearly 2000 years, so they can’t be that difficult to grasp!
If you have an unfavorable attitude regarding Fixed Annuities, consider where and how you came to that conclusion. What source did you hear the ominous noise? What method did they use to hear it? Did they have a financial stake in your money? Were they just a decent buddy who was trying to help but unwittingly spreading lies and half-truths?
1.) Annuities are purchased because of their inherent safety, security, and stability.
2.) No one has ever lost money in a Fixed Annuity if they stick to the terms of the contract.
3.) If chosen, one can earn a lifetime income guarantee.
4.) The growth of your annuity is tax-deferred. This becomes a significant factor over time.
5.) You benefit from market growth in a good year while avoiding losses in a poor year.
6.) You can get your money in a number of ways. Your funds aren’t “locked up.”
7.) There are no fees and they are voluntary.
Isn’t it best to learn the facts and truth about all your possibilities before making retirement income decisions? Recognize all of your options. And, rather than hearsay and half-truths, make sensible conclusions based on objective facts? It’s a lot less taxing on my head!
Are fixed annuities SIPC insured?
The Securities Investor Protection Corporation, a privately held business that covers investment accounts, is home to many brokerage firms. The SIPC will compensate your losses up to $250,000 per account holder if an investing firm goes bankrupt. The SIPC does not protect you against financial losses caused by the loss of value of your securities, but it does protect you against financial losses caused by the insolvency of a brokerage business. The SIPC insures a variety of securities, including variable annuities. Fixed annuity contracts and certain other forms of insurance plans, however, are not covered by the SIPC.
What states protect annuities from creditors?
There are laws in existence in a few places that allow annuities to shield you from creditors and frivolous lawsuits. Texas and Florida are two good examples of these states. Both have special statutes in place to protect your annuity and life insurance assets in today’s litigious society. Here are the links to the statutes of Florida and Texas if you want to read the actual laws.
O.J. Simpson is often used by Florida annuity agents as a poster child for annuity protection under these creditor protection statutes. According to the narrative, our favorite Southern California running back has a lot of money in annuities. He lived in south Florida before making some stupid judgments in Vegas, and the pitch you’ll hear is that the annuities he bought were totally protected under Florida statutes. I’ve never spent enough time on the O.J. Simpson case to get into the specifics, but I personally know a number of doctors and wealthy business owners in Florida who have taken advantage of this asset protection law statute by investing in annuities and life insurance.
Physicians may also use these creditor protection statutes in conjunction with particular annuity methods to reduce the amount of malpractice insurance they are required to carry. If you pay off your house in full in Florida, that asset is protected by state law. That, along with the fact that there is no state income tax… and the beaches are very good… is why you see a lot of high-level people have their primary residence in Florida. After the house is paid for in full, you can invest all of your non-IRA assets (i.e., non-qualified) in annuities or life insurance products to secure everything from predators. In Florida, the asset protection game is played in this manner.
