Index Annuities Gains
In 2008, the SP500 lost about 40% of its value. Investors in indexed annuities did not lose a cent which took nearly 4 years for the SP500 to get back to 2007 levels.
For individuals who were retiring in 2008, or had tax qualified accounts in an Indexed annuity and passed away, that was a great deal. Some use an indexed annuity as the “safe” portion of a portfolio as an asset class
Fees
Most indexed annuities have “$0” fees and $0 admin and maint. fees. An estimated 95% of indexed annuities have zero fees associated with their policies unless you add a specific rider for income or death benefit guarantees. That commission is paid to the agent from the company, it doesn’t come out of the clients portfolio.
Many agents take their commission over a 5 year period, meaning that their commission is <1% annually, which is less than most brokerage account manager’s charge.
Surrender charges
State regulators limit the surrender charges. The highest surrender charge that I can find is 14% in year one (two financial companies), and that is only available in a few states. Surrender charges in annuities function very similar to Bank CD surrender charges. If you pull the investment before maturity, you will pay a penalty. That is why it is called a “contract”.
There is built in liquidity that every policy has by state law. Usually this amount is 10% annually, and some companies allow that 10% to aggregate (i.e. if you don’t pull funds for 5 years, you can pull up to 50% of the contract in one withdraw without penalty).
Taxes
Taxes are the same as any 401k, IRA, or qualified plan (the same thing that the author recommends in the final section). Suitability practices over the past five to ten years or so have increased substantially to prevent mis-representation by agents or the companies.
Personalized client investment goals
Not every client is trying to maximize return, some simply want the guarantee that they won’t lose any of their principal, their taxes are deferred, and don’t mind if it’s in a 5- 10 year contract with minimum guarantees. There are very few annuities that have flexible premiums and allow annual contributions, most are single premium rollovers. Putting money into an indexed annuity or an ongoing contribution strategies are part of the “Accumulation” process leading to retirement.
Email Connie at motherhealth@gmail.com or conniedbuono@gmail.com to have a chat with a sr investment advisor to help you reduce your income taxes and protect your cash flow. 408-854-1883