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Recommended Books for Annuities


Annuities for Dummies:

This book provides an in-depth overview of the different types of annuities and their strengths and weaknesses. Annuities can be a useful retirement tool when used correctly and a burden if they are used incorrectly. This book is not designed to convince you that annuities are something you should buy. Instead, this is an educational reference that allows you to learn and decide for yourself.

Social Security, Medicare and Government Pensions: Get the Most Out of Your Retirement and Medical Benefits

This book offers guidance on the sometimes confusing topics of Social Security, Medicare, and other government programs. At Montana Life Group we offer personal assistance with Social Security. If you are the self-education type then you might want to read sections of this book as well.

Annuity Frequently Asked Questions

» How do I use an annuity for retirement income?

Many annuities have lifetime income features that can serve as incredibly useful tools in retirement. Retirees often hope to achieve an ongoing monthly cash flow for the rest of their life, as opposed to having access to a lump sum of savings. An annuity with a lifetime income feature can offer the consistent monthly income some retirees are looking for.

There can be several different ways to turn an annuity into income. Some annuities offer inflation protected income or a rising income stream based on a 3% cost of living adjustment. Most annuities also offer the option of spousal lifetime income which ensures a surviving spouse continues to collect income uninterrupted.

If your primary focus is to generate an income stream in retirement you may want to see what an annuity can offer.

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» Why are annuities considered retirement products?

Montana Life Group firmly believes that annuities are for two things: retirement savings and retirement income. Annuities receive special tax treatment from the IRS as a “tax deferred savings vehicle.” This can be a major advantage for growth potential but there is also a catch. The IRS imposes a 10% penalty on a portion or all of the funds in an annuity if a person accesses them before age 59 1/2.  There are some complex exceptions to this rule, but for the most part you should only consider putting money into an annuity that you plan on using after turning age 59 1/2. If you are older than or close to age 59 1/2 then annuities can offer tax deferred growth, a guaranteed growth rate, and guaranteed income for life without a 10% tax penalty from the IRS. If you wish to learn more about annuities give us a call or request more information.

» What are the risks in annuities?

The fixed and fixed indexed annuities that Montana Life Group represents do not have direct market risk but there are several other risks to consider. Most importantly the financial strength of the issuing insurance company should be considered. Additionally an annuity purchaser should consider the surrender charges and surrender period (time commitment) required in an annuity. Surrender charges are the penalties that are imposed if a person surrenders their annuity early. A person should also pay close attention to any fees in the annuity. Often times an annuity with no annual fees can have an optional feature called a rider which actually does have an annual fee. Montana Life Group can help you navigate the complexities of annuities and will clearly spell out the associated risks and benefits. Give us a call or request more information.

» Can I rollover my 401(k) into an annuity?

401kAnnuity QuoteWhether you have an old 401(k) from a previous employer or you are trying to fully understand the options that are available to you with your current 401(k) you may want to consider the benefits an annuity can offer.

One of the primary purposes people buy annuities is to achieve a guaranteed lifetime cash flow in retirement. We all know that social security offers a monthly income for life. A company pension can also offer a monthly income which cannot be outlived. A traditional 401(k) plan, on the other hand, is more similar to an investment account or savings account which holds a lump sum of cash. In retirement many people become less concerned with the money they have in savings and more concerned about maintaining a positive monthly cash flow. Rolling funds from within a 401(k) into an annuity can offer the benefits of retirement income that cannot be outlived.

The amount of monthly income an annuity can generate may surprise you. Some annuities even offer an increasing income with inflation protection features. If you are curious about the retirement income stream the funds in your 401(k) could generate if they were positioned in an annuity you can request information or send us an email.

When choosing an annuity it’s important to consider the financial strength of the issuing insurance carrier. It is also important to consider the surrender charges, surrender period (time commitment), and any annual fees and may apply. Be sure to ask your agent about the guaranteed returns in an annuity, not just the potential gains.

» Why do people buy annuities?

Annuity ratesThere are many reasons people buy annuities, but the main intent is to provide retirement income. Money that is positioned into an annuity grows on a tax deferred basis and often can be turned into an income stream that will last for a person’s entire life. Fixed annuities and fixed indexed annuities also offer safety from fluctuations in the stock market.

As people age and become closer to retiring, some tend to become less concerned with achieving above average gains in investments that can have higher risk and more concerned with preserving their funds and getting a reasonable rate of return. Fixed annuities and fixed indexed annuities offer safety from market volatility.

Another important thing on retired people’s minds is cash flow planning. When a person retires they tend to become less concerned with the gains they achieve on their money and more concerned with the amount of money they can safely withdraw on a monthly basis without ever running out of money. An annuity can ease a retiree’s mind by providing monthly income that is guaranteed to never stop as long as a person lives1.

When used correctly, an annuity can be a very attractive retirement income planning tool. When used incorrectly, an annuity can limit a person’s access to their funds and cause financial hardship. For that reason it is important to consult an experienced and trusted insurance agent or financial adviser when structuring a retirement strategy using annuities.

Annuity quote

 

 

  1. Lifetime income received from annuitization or use of an income rider can have limitations. Taking liberties such as additional free withdrawals or surrenders can adversely affect lifetime income payments. It is important to make sure your insurance agent or financial advisor clearly explains the limitations on lifetime income payments.

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» What is an annuity?

myga annuityANNUITY QUOTEAn annuity is a contract between an insurance company and an individual. The contract can be designed in many different ways to suit the person’s needs. Typically a person contributes a lump sum of money or multiple ongoing contributions of money in exchange for either: (1) a rate of return at a future date or (2) a series of income payments beginning at a future date. There are too many types of annuities to try to list in this post, but put simply: because of their tax structure, annuities are usually used for saving for retirement or providing income during retirement.

Why is an annuity primarily used for retirement savings? The reason is funds in an annuity grow on a tax deferred basis which can be extremely favorable. On the flip-side, since the IRS allows funds in an annuity to grow tax deferred, a 10% tax penalty is applied to the gains1 if the funds are removed before age 59½ . For that reason, Montana Life Group views annuities as an insurance product designed to help with retirement.

Why do people buy annuities? Because some annuities have lifetime income features. While the benefits of tax deferred growth are extremely attractive, many Americans buy annuities for the income stream they can provide in retirement. Decades ago a worker could depend on their company pension to provide monthly cash flow during retirement, similar to Social Security. In recent times pensions are less common as companies have replaced them with 401K plans. Many retirees prefer the concept of monthly income for a lifetime rather than access to a lump sum of cash, so they rollover their 401K funds or other savings into an annuity.

Some agencies which offer annuities tout them as investments that can yield above average gains and attractive interest rate bonuses. At Montana Life Group we do not view annuities as an investment with the potential for huge gains. Instead we view annuities as insurance products that contractually provide the security of income in retirement or conservative growth of retirement funds.

  1. This example applies to non-qualified funds. If qualified funds (IRA or 401K) are used in an annuity and removed before age 59.5 a 10% penalty can be applied to the entire amount.

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» What is a hybrid annuity?

myga annuityAnnuity QuoteThe most recent buzz in the annuity marketplace surrounds the use of so-called “hybrid annuities” to obtain safety, reasonable returns, and lifetime income. The term “hybrid annuity” has been made popular by a series of online videos which are designed to give some insight into the features of these insurance products and generate interest in using them as a retirement vehicle.

 

What is a hybrid annuity?

So what is a hybrid annuity? Basically it is a fixed indexed annuity that includes the use of an optional income rider. Coupling an optional income rider with a fixed indexed annuity can indeed offer some very attractive benefits to retirees.

Let’s examine why some retirees like this concept. First of all, the fixed indexed annuity itself can be attractive as a vehicle to grow retirement funds and offer potential gains higher than the rates offered by more simple fixed annuities. In a fixed indexed annuity there are several interest crediting strategies. Many of these strategies allow funds held within the annuity to participate with the growth of a market index (such as the S&P 500) up to a certain limit or “cap.” When the index goes up, the annuity value can grow, but when the market declines gains are locked in1 and the annuity’s value does not decline. This concept alone can be attractive, but let’s take a look at how an income rider can offer lifetime income.

An income rider is an additional feature that is optional on many annuities. Think of it as an optional feature that can be added when purchasing a new car. When you are buying a new car your main concern is probably ensuring the car runs and drives properly. In addition to the functionality of the car, you may want additional comforts such as air-conditioning, leather seats, or 20-inch rims. The income rider on an annuity offers some additional attractive features and, like in the car example, these features may come with an additional cost (e.g., annual fees).

Why would someone pay an annual fee to have an income rider? In a lot of cases the income rider is the primary reason for the purchase of the annuity. Income riders allow an annuity owner to convert their annuity into a series of monthly or annual distributions that are contractually guaranteed to continue for a person’s entire life. Income riders can also guarantee lifetime income for both lives of a husband and wife. An annuity income rider also offers the ability to convert an annuity into lifetime income without losing control of the underlying annuity account value. This is referred to as “avoiding annuitization.”

Why is avoiding annuitization important? Years ago when annuities were converted to lifetime income the term was “to annuitize” the contract. This meant a person or couple could begin taking lifetime income, but they had to give up control of their annuity account value. Now, with the use of income riders, a lifetime income is available but the income distributions are treated similar to withdrawals from the contract and the owner retains rights to the annuity contract value2.

At Montana Life Group we avoid using the term “hybrid annuity” as it is not officially recognized by insurance companies. That said, the use of income riders in conjunction with fixed indexed annuities can be a useful concept in building a retirement income plan depending on the client’s needs. Whether you are working with a Montana Life Group agent or another insurance agent or financial advisor be sure to ask for a full explanation of fees and provisions built into the annuity and income rider.

  1. Interest credits are typically locked in after a 12 month anniversary period with most strategies but not all strategies. It’s important to ask your insurance agent or financial advisor exactly how different interest crediting strategies are designed to perform.
  2. Rights to the contract value are still subject to the provisions of the contract so it is important to take into account withdrawal limits, surrender charges, and how additional withdrawals will affect future lifetime income payments.

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» What happens if I own an annuity and I die?

It depends on what type of annuity you have. Some types of annuities simply stop paying a monthly income and the contract would cease to exist. Other types of annuities continue paying an income benefit to your spouse. Still other types of annuities pay a lump sum of cash to your named beneficiaries.

There are too many scenarios to list in this post but this is a very important question to ask your insurance agent or financial adviser when structuring a retirement strategy using annuities. Many options are available that can be custom-tailored to fit your needs and desired outcome upon death of the annuity owner or annuitant.

Learn More About Annuities

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Troy Baccus

Troy Baccus
Retirement Income Specialist

Troy Baccus is a managing partner of Montana Life Group. Troy has an extensive background in retirement strategy design and Social Security optimization thanks to a career working as an annuity case design specialist for one of the most respected annuity distribution firms in the industry. Troy has spent years designing income strategies for some of the top financial advisers around the country. He started Montana Life Group to provide professional help with the extremely important task of developing realistic strategies for retirement. Although some clients’ needs are complex, Troy explains things in an easy to understand way. Recommended strategies typically have a very conservative approach.  View Troy’s full profile>>

 


Want to learn about annuities?

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ANNUITY QUOTE

Annuities can be an important piece of the retirement puzzle. At Montana Life Group our philosophy is that an annuity is a financial tool that should be used exclusively for retirement savings or retirement income planning. Annuities are complex financial instruments so we make sure to explain all of their attributes, both positive and negative, to our clients. If you want to learn more about annuity options then you have come to the right place. Give us a call, request an annuities quote, or send us an email. If you decide an annuity might be right for you, our agents can build you a well-structured annuity plan.

Request a Free, No-Obligation Annuity Rate Quote

Annuities Are For Retirement

Annuities serve two purposes: retirement savings and retirement income. Annuities receive special tax treatment from the IRS as a “tax deferred savings vehicle.” This can be a major advantage to growth potential but there is also a catch. The IRS imposes a 10% penalty on a portion or all of the funds in an annuity if a person accesses them before age 59 1/2.  There are some complex exceptions to this rule, but for the most part you should only consider putting money into an annuity that you plan on using after turning 59 1/2.

Using Annuities For Retirement Income

Many annuities have lifetime income features that can serve as incredibly useful tools in retirement. Retirees often hope to achieve an ongoing monthly cash flow for the rest of their lives, as opposed to having access to a lump sum of savings. An annuity with a lifetime income feature can offer the consistent monthly income some retirees are looking for.

Using Annuities For Saving

Annuities can be excellent retirement savings tools. Money positioned in annuities is able to grow tax deferred at an interest rate that is guaranteed by an insurance company. Some fixed indexed annuities offer the potential for significant gains but we tend to focus more on the guaranteed gains an annuity can offer, such as with a MYGA annuity.


Summary
Annuities
Service Type
Annuities
Provider Name
Montana Life Group,
Area
Available in most states.
Description
Annuities are complex financial instruments so we make sure to explain all of their attributes, both positive and negative, to our clients. If you want to learn more about annuity options then you have come to the right place.

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