DO ONLY BANKS GUARANTEE MONEY?
The simple answer, NO! There are numerous products that, when our clients walk into a bank purchasing, walking out are NOT GUARANTEED! Like Mutual Funds, Stocks, Variable Annuities…the list goes on and on. So, what is a Guaranteed Money product Retirees, Pre-Retirees, and simply individuals who do not want to risk their money to the market, FIXED ANNUITIES? Fixed annuities have been around for over 100 years and probably will be around for another 100 Years.
ABC’S OF ANNUITIES
So, what exactly is an Annuity Contract? An Annuity Contract is a contract written by an Insurance Company. You may have purchased an Annuity Contract from numerous places such as your Bank, Your Financial Adviser, Directly from an Insurance Company, and An Insurances Agent regardless of how you ended it purchasing the contract is Issued by an Insurance Company. Whether you bought it from an American Company like Nationwide Insurance Company or a French Company like Allianz, the Company would have to be licensed and approved in the State that it is offered/purchase. Yes, Annuities vary from State to State, being that the State Insurance Departments differ slightly in the process of Approving Insurance Companies and their products in their State.
SO HOW DOES A FIXED ANNUITY WORK?
Fixed Annuities are simple, and they typically Guarantee your money will grow at a set rate (or Guaranteed Rate) over a set period, usually 1 Year, 5 Year, 7 Year…
Depending on the Insurance Company and the Product. Depending on the Contract, you may also receive an interest rate enhancement during the initial year or initial few years of your contract. For the conservative individual or the retiree, this is a great way to invest without taking any risk.
WHO EXACTLY GUARANTEES FIX ANNUITIES?
Insurance Companies are not only the insurance companies, the Largest Institutional Investors of the world, but insurance companies have been around hundreds of years. A lot of sailors during the formation of our great nation relied on insurance company products like Fixed Annuities and Life Insurance. If you have thru the North East you will see an insurance company building in the Skyline, i.e., John Hancock Tower in Boston (One of the tallest structure in Boston), NY Life Building in NYC (Golden Top), Met Life Tower in NYC (Gold Top), Union Central in Cincinnati, Mass Mutual in Springfield, Massachusetts, the list goes on and on… By the way, First Manhattan Financial Represents all of these Companies among 40+ others.
WHAT ARE SOME BENEFITS OF A FIXED ANNUITY?
Well, first and foremost that an Insurance Company guarantees the Annuity Contract.
Another benefit of a Fixed Annuity Contract is Tax-Deferred Growth. What does this mean in plain English; unfortunately, Insurance Brokers/Agents sometimes get caught up with Insurance Terminology that can be very confusing to the end-user which is our client, Tax-Deferred Growth means as the contract grows annually, you do not have to pay taxes on the growth of your money annually. Why is Tax-Deferred important, it provides for compound growth! You do have to pay taxes eventually when taking withdrawals.
All Annuities, including Fixed Annuities, are considered a Retirement Product and receive these preferential tax benefits as they are typically intended not to accept benefits before 59 ½. If you do access your money before 59 ½, you will be penalized 10% to the IRS as a Surrender Charge.
Additionally, it should be clear that we are not Accountants, and all taxes should be discussed with your tax professional.
SO, WHAT IS THE DRAWBACK?
Fixed Annuities have a Surrender Period, typically 1 Year, 2 Years, 3 Years, 5 Years, or 7 Years very much like a CD (Certificate of Deposit) you would purchase. So, it is essential to discuss this with your Insurance Broker to make sure, and the product meets your needs.
Issue Ages typically 0 to 85, with seniors living longer and longer, this product may not be available at later ages.
SOME OTHER BENEFITS
Death Benefits, yes! Insurance Companies issue fixed Annuities, so all Annuities do have Death Benefits. These benefits vary from contract to contract, but most Contracts allow you to name a Beneficiary. The Beneficiary will typically receive the full value of the contract with no surrender charges or additional expenses. What’s more important is that this Death Benefit passes on to the Beneficiary bypassing probate! We all know what a lengthy, complicated, and expensive experience Probate can become.
WHAT ABOUT RETIREMENT MONEY, IS THIS A GOOD FIT?
We a Fixed Annuity Contract can be a Traditional Individual Retirement Account (IRC Section 408), a Roth IRA, a SEP IRA, A Tax-Sheltered Annuity, and a Government 457 Deferred Compensation Plan. These contracts receive a Direct Rollover from your IRA, Roth IRA, 401K Plan, 457(b) Plan, 403(b) Plan, Tax Sheltered Annuity, SEP IRA. Please consult with us if you have any questions. At First Manhattan Financial, we always encourage a Trustee to Trustee Rollover. This means you allow the receiving Fixed Annuity Company to accept money for your benefit into your contract. We have heard many stories of Insurance Agents/Financial Advisors/Banker that recommend you received the check directly (which the IRS allows a 60-day window for this type of transfer); however, at the year-end, why risk the IRS challenging your rollover.
NEXT STEPS
The fact of the matter is that there is not a silver bullet that all your investments should be in. What most people, unfortunately, look for is one product to resolve all their investment objectives; unfortunately, for most Americans, no such Investment exists. What we recommend is you meet one of Insurance Professionals to discuss your goals, risk tolerance, so that we can determine if a Fixed Annuity is a good fit with your objectives.
At First Manhattan Financial Network, we are Licensed to sell Fixed Annuities with the Department of Financial Service, New York State. The State of New Jersey, State of Massachusetts, the State of Connecticut, State of Texas, among other States, please contact us directly to check if we offer Annuities in your State.