My Comments: First, Happy New Year to everyone. With any luck, 2022 is going to be better than 2021.
Like so many current and acceptable financial tools for so many of us, annuities come associated with myths that may or may not be relevant anymore.
Part of the problem is they come in so many varieties that for many of us, it simply results in confusion. And that can be a bad thing if you’re thinking about committing a lot of money for something.
State regulatory agencies, over the past two decades, have worked hard to minimize the negative outcomes experienced by millions of Americans in decades past.
The efforts by said legislative agencies was largely in response to complaints, lawsuits, and bad press across a broad spectrum of society. Some people went to jail, and legitimate companies, mindful of their financial future, put in place in-house rules to minimize the damage done by some agents and the ideas and arguments they used with unsuspecting consumers.
Today, while there is still an observable spectrum from really good product design to not so good design, by and large the consumer is not going to get fleeced. Granted, not all agents work in the best interest of their clients, but by and large, what you as a consumer can buy today is dramatically better than what was available as little as 20 years ago.
For those of you wondering, here is a list of 22 uses for an annuity contract today. Just remember, not all contracts being sold will be a good fit for you and your reasons for committing money to one. Caveat Emptor.
by Harry N. Stout \ 21 DEC 06 \ https://tinyurl.com/y29w3v6j
As we head toward 2022 and see more Americans reaching their so-called retirement years, it’s a great time to revisit how annuity products can be used to meet consumer financial challenges.
In anticipation of the new year, here are 22 ideas on how consumers can use annuity products to meet their growing financial needs:
1. Social Security Maximization
Purchase an immediate annuity to provide current retirement income while delaying claiming Social Security retirement benefits in order to qualify and maximize the partially inflation-adjusted monthly Social Security benefit payment.
2. Tax-Deferred Accumulation
Use a deferred annuity for tax-deferred accumulation. Annuity earnings aren’t taxed until they are withdrawn, or the buyer starts taking regular distributions.
3. Principal Protection
Use the contractual guarantees of fixed annuity products to protect and never lose the principal paid for the contract.
4. An Alternative to Low-Yielding Bank Products
Use a multiple-year fixed annuity (MYGA) as an alternative to purchasing a certificate of deposit to obtain current higher rates of return.
5. Fund Essential Living Expenses
Purchase an income annuity or use the income options of a deferred annuity to help fund essential living expenses in retirement. This approach can free other assets for investing in potentially higher-yielding or inflation-offsetting asset classes.
6. Create Protected Income from Accumulated Assets
Transfer funds from a 401(k) or other qualified retirement savings plan to an annuity product to utilize the annuitization or optional income riders to turn accumulated funds into a protected, guaranteed income stream.
7. Life Insurance Policy Salvage
Use an income annuity to salvage an underwater life insurance contract by converting the cash surrender value created by paid-in premiums into a lifetime income stream.
8. Source of Long-Term Care Funding
Use a non-qualified deferred annuity to fund premiums for a long-term care (LTC) policy. If set up properly, the owner can obtain a tax-free way to purchase LTC.
9. Minimize Longevity Risk
Use a deferred income annuity or qualifying longevity annuity contract (QLAC) as hedges against outliving savings. The options can provide income in case of an extremely long life.
10. Medicaid Spend-Down Protection
Purchase a Medicaid qualified annuity to preserve assets.
11. Create an Annuity Bucket Approach Using Retirement Funds
Purchase income annuities for the Income Now Bucket, a deferred fixed or variable annuity for Income Later Bucket and a third bucket using the income options of a deferred fixed or variable annuity to satisfy required minimum distribution needs.
12. Market Downside Protection
Purchase a fixed annuity contract as a hedge against downside equity market risk to preserve capital at older ages.
13. Gifting to Family Members
Use an income annuity to create a cash flow for gifting to family members taking advantage of the gifting exclusion with the funds to be used for education funding, lifetime gifting or vehicle lease or purchase payments.
14. Diversification Tool
Utilize the different available indexing options of a fixed indexed annuity or investment options of variable annuities to create a diversified approach to reach consumer accumulation goals.
15. Minimize Sequence of Returns Risk
Use the principal protection of fixed deferred annuities to protect against the risk of major market downturns in the early years of retirement.
16. Create a Lifetime Income Stream
Exchange the cash value of an unneeded permanent life insurance policy for an annuity product using a tax-free exchange.
17. Accelerate Income Creation
Use the tax deferral provision of annuities to earn interest three ways: interest on principal, interest on interest and interest on the tax savings.
18. Supplement to Retirement Income
Use the annuitization and optional income riders of annuity products to create a protected flow of supplemental retirement income.
19. Probate and Estate Advantages
Use the intrinsic features of deferred annuities to have the proceeds of an annuity paid directly to designated beneficiaries and likely avoid the time and expense of probate.
20. Zero Is Your Hero
Use the structure of fixed indexed annuities to guarantee that principal paid for the contract will not be lost due to market downturns. The buyer of a fixed indexed annuity never receives less than zero percent interest in any crediting period.
21. Income Planning for Small Businesses
Use income options of a deferred annuity to create a lifetime income stream for small, qualified plans by making the annuity an investment of the qualified plan.
22. Obtain Living Benefits
Use the contractual benefits and optional riders of deferred annuity products to obtain living benefits such as nursing home confinement waiver of surrender charges, terminal illness waiver of surrender charge benefits or enhanced income withdrawals for chronic illnesses. The living benefits available will depend upon the package of benefits offered by the underwriting life insurer.