What if you said you can earn more interest when the stock market goes up, but no principal or interest is charged when the stock market goes down? Would that interest you? This is the second in a series of articles supporting that claim. we will fix it
The previous installment in this series explained how the fixed index rate works and is calculated. This method provides the positive result of safe interest rate growth linked to selected stock indices (such as the S&P 500). The result raises interest rates without risk of market loss. To watch that episode, go to the previous article published on March 27, 2015.
Fixed-index annuities and indexed universal life insurance policies use fixed-index interest calculations to add interest and build the account until you’re ready to start making payments. Each has other features and benefits that make them unique.
This episode will focus on fixed index annuities.
“Annuity” is a phrase with different definitions and variations. The basis of an annuity is that it offers a series of payments. That sequence can start right away or be postponed to a time in the future. There may be a limited number of payments or they may last for the rest of your life.
My goal is to use a deferred fixed index annuity to safely grow your retirement account and have an income for the rest of your life.
A “fixed rate annuity” is a form of “deferred annuity.” You immediately put the client on the contract. Payments start later; based on a higher future balance. That higher balance includes earnings during the deferral period; plus your first deposit. Due to the tax rules on annuities, only profits on that growth are taxed. If the money is in a qualified plan or IRA, the entire payment will be taxed; and at normal earnings rates. That’s the price of getting the tax deduction in the beginning when you contributed to the plan years ago. If the money is “Not Qualified” (it was what you had left after taxes on what you earned), the tax rules allow you to recover your “investment” tax-free. This is calculated using a statutory “exclusion rate”. That divides each payment into the nontaxable return of principal and the taxable portion of interest earned.
ASSET PROTECTION. In Florida, the annuities you own individually are protected from your creditors. The bailiff cannot “garnish” an annuity when a judgment is collected against him. If the annuities are in an IRA or a qualified plan, the federal rules even provide additional protection.
This is important for several reasons. First, although certificates of deposit are guaranteed against loss by the FDIC if your bank fails, they are not protected from your creditors. You can set them to “whole rentals” with your spouse. That works. But if your spouse dies before you; the protection disappears. Brokerage accounts are protected to a certain extent by SIPC. However, they also fall under the claims of your creditors. Again, there are some steps you can take (such as establishing a qualified irrevocable trust in certain states) that can protect brokerage accounts. But only the sheriff can come looking for them if he has a verdict against them.
Florida law automatically makes annuities unavailable for bailiffs to collect if he has judgments against him. Easy.
Now you can’t put money into an annuity if you already have a claim against it. They call this a “fraudulent conversion.” You take collectible money and convert it to free cash to avoid a creditor. So if you want asset protection, put the money safely into annuities as soon as it makes sense for you.
WARRANTY. Many people live with historically low interest rates to get FDIC protection for their certificates of deposit. Learning about the guarantees an annuity can provide, with a much higher interest rate, can make you feel more comfortable. You see, the issuer (be it an insurance company or an annuity company) is the guarantor of your principal. With a deferred annuity with a fixed rate, the company also guarantees the interest you earn.
Is this guarantee worth it? In any case, there are a number of reasons why you can trust the guarantee of a company that issues an annuity.
First, your state insurance commissioner regulates companies that offer annuities. This includes audits and other supervision. They also arrange how annuities are sold to you. The Insurance Commissioners do not want long-term annuities sold to people for whom they are not suitable. I will change immediately