Annuity Investing for Retirement
Table of Contents
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Chapter 1: Retirement’s Surprise |
1 |
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Finding Retirement Income |
1 |
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Everyone is Living Longer These Days |
5 |
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Retirement Risks |
6 |
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Baby-Boom Generation Reaches Retirement |
8 |
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Putting Off Retirement |
10 |
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Gender Issues in Retirement |
10 |
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Interest, Dividends and Rental Income |
14 |
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Supplementing SS with Lifetime Annuities |
14 |
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Retirement is Expensive |
17 |
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How Much Money is Needed to Fund Retirement? |
21 |
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Limiting Credit Card Use in Retirement |
23 |
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Mortgage Debt |
25 |
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Paying Loans for Others |
25 |
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Social Security’s Development |
27 |
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Changing the Age of Retirement |
37 |
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Choosing a Financial Path |
38 |
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Taxation Affects Retirement |
38 |
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Tax Efficiency |
40 |
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After Longevity, Health is a Major Retirement Concern |
40 |
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The Disappearing Three-legged Stool |
41 |
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Diversification |
42 |
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Rule of 100 |
47 |
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Managing the Retirement Money |
47 |
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Supplementing Other Retirement Income |
50 |
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Annuity Purchase Advantages |
50 |
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Annuity Purchase is not Right for Everyone |
51 |
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Investing Dedication is a Rare Quality |
52 |
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Chapter 2: Annuity Types |
54 |
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An Ancient Instrument |
54 |
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The Annuity’s Investment Role |
55 |
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Capital Reserve Requirements of Insurers |
56 |
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Structured Settlements |
57 |
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Annuity Extras |
59 |
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Options |
59 |
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Principal Protection |
59 |
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Annuity Cost-of-Living Protection Option |
59 |
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Premium Methods |
60 |
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Annuity Choices / Joint and Survivorship |
60 |
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Guaranteed and Life-Time-Certain Annuities |
61 |
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Level Annuities |
61 |
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Capital-Back Guaranteed Annuities / Escalating & Inflation Annuities |
62 |
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Enhanced Annuities |
63 |
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The Roth and Education IRA |
65 |
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Roth IRA / the Coverdell IRA |
65 |
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Tax-Deferred Accumulation / Flexibility |
67 |
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Annuity History |
67 |
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Annuity Basics |
71 |
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Choosing Between Fixed and Variable Annuities |
71 |
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Choosing Between a Lifetime Annuity and Term Annuity |
72 |
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Determining Investment Type |
73 |
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Annuity Participants / “Measuring Life” |
74 |
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Annuity Terminology |
75 |
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Annuity Contracts are “Driven” |
79 |
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Meeting Investment Goals |
80 |
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How to Sue an Annuity for Losses by Kay Miranda |
82 |
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Annuity Investment Advantages |
83 |
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Safety of Principal |
84 |
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Reserve Pools |
87 |
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Tax-Deferred Growth |
91 |
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Tax-Deferred Defined |
92 |
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Tax-Deferred Status |
93 |
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Tax-Deferral Exception / Annuity Gifts |
94 |
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Annuities are (Sometimes) Protected Assets |
95 |
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Probate / Sometimes an Annuity is a Bad Idea |
97 |
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Surrender Penalties |
98 |
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Other Tax Issues |
98 |
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Death of the Annuitant |
99 |
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1035 Exchanges |
100 |
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Making the Right Annuity Choices |
100 |
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So Many Choices |
101 |
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Immediate Annuities |
103 |
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Split Annuities / Single Premium Annuities |
104 |
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Flexible Premium Annuities / Policy owner Risk |
105 |
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Variable Annuities |
106 |
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Fixed Annuities |
110 |
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Declared Rate Fixed Annuities / Indexed Fixed Annuities |
110 |
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Two-Tiered Annuities: Tier 1 and Tier 2 |
111 |
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Investment Risk |
112 |
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Old Money-New Money |
113 |
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Interest Rates |
115 |
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Price Inflation |
120 |
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Measures of Inflation |
122 |
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Time Value of Money (TVM) / Issue Age Guidelines |
122 |
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Annuity Date |
123 |
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Withdrawal and Surrender Charges and Waivers |
124 |
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Chart / “policy term” |
125 |
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Premium Payments |
126 |
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Contract Administration Charges and Fees |
127 |
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ERISA and Tax-Favored Retirement Plans |
128 |
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Using Annuities in Tax-Favored Retirement Plans |
128 |
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Group and Individual Annuity Contracts |
129 |
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IRS Requirements for Annuity Funding |
129 |
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Taxation of Qualified Annuity Distributions |
129 |
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Chapter 3: Fixed Rate Annuities |
131 |
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Annuity Bailout Options |
133 |
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Example |
134 |
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Guaranteed Rates of Return |
136 |
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1. What is the Guaranteed or Roll-Up Rate? |
139 |
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2. How Long is Roll-Up Rate Guarantee Period? |
140 |
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3. What is the Actuarial Payout? |
140 |
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4. What Fees will be Charged? |
140 |
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5. What are the Insurance Company Ratings? |
141 |
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Fixed & Variable Options |
141 |
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Financial Strength of the Insurer |
142 |
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How Fixed Period Annuities Work |
142 |
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Chapter 4: Equity Indexed Annuities (EIA) |
144 |
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Researching the Products |
146 |
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Defining the Equity Indexed Annuity |
147 |
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EIA Guaranteed Rates of Return |
153 |
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Know the Facts Prior to Buying |
155 |
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Index Crediting |
156 |
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Participation Rates |
157 |
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Averaging |
158 |
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Caps |
159 |
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Spreads, Margins, and Administrative Fees |
159 |
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Returns |
160 |
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Indexing Formulas |
161 |
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Annual Reset Indexing Method |
162 |
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High Water Mark Indexing Method |
162 |
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Point-to-Point Indexing Method |
163 |
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Multiple EIAs with Diversified Indexing Methods |
164 |
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Withdrawing Annuity Funds/Payout Options |
165 |
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Example |
166 |
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EIA Safety |
167 |
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A Comprehensive Financial Plan |
167 |
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Example |
168 |
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Grasping Fundamental Aspects of the Product |
171 |
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Terminology for a Complex Product |
173 |
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General Contract Provisions |
176 |
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Entire Contract |
177 |
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Changes and/or Waivers / Misstatements |
177 |
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Required Reporting / State Law / Claims of Creditors |
178 |
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Other Contract Items |
179 |
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Additional Payments |
179 |
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Surrender Values and Penalties / New Developments in Indexed Products |
180 |
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Chapter 5: Variable Annuities |
182 |
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Variable Annuity Death Benefit |
182 |
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Subaccounts / Immediate or Deferred / Long-Term Investments |
184 |
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Annual Expenses |
185 |
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Variable Annuity Buyback Offers |
186 |
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Funding Variable Annuities |
189 |
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Variable Annuity Fees / Surrender Fees / Early Withdrawal Tax Penalty / Taxation |
190 |
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The Commitment |
191 |
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Asset Allocation |
192 |
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Asset Allocation Importance |
193 |
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Choosing Asset Allocation |
194 |
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Analyzing the Asset Allocation Model / Risk & Return / Defining Risk |
195 |
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Business Risk / Market Risk / Interest-Rate risk / Inflation Risk |
196 |
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Protection Against Inflation |
197 |
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Measuring All the Risks |
198 |
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Lifecycle Beta |
199 |
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Living with Risk and Return |
200 |
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Managing Sub-Account Strategies |
200 |
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Relationship Between Variable Accounts |
201 |
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Sub-Account Options |
201 |
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Performance |
202 |
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Risk Control / Expense Minimization / Investment Options |
203 |
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Family Rating / Management |
204 |
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Aggressive Growth for Capital Appreciation |
204 |
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Aggressive Growth for Maximum Growth |
205 |
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Growth Sub-Accounts Seeking Capital Appreciation |
205 |
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Growth & Income Sub-Accounts Combining Stock and Bonds |
206 |
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International Stocks |
207 |
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Balanced Sub-Accounts Combining Stock & Bonds |
208 |
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Corporate Bond Sub-Accounts Fixed Income |
209 |
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Government Bond Sub-Accounts Fixed Income |
211 |
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High Yield Bond Sub-Accounts Fixed Income |
212 |
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Global & International Bond Sub-Accounts Fixed Income |
213 |
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Specialty Portfolios |
215 |
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Metals Sub-Accounts Specialty Portfolios |
216 |
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Utility Stock Sub-Accounts Specialty Portfolios |
217 |
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1997 Tax Law Hits Variable Annuities / Reallocation of Assets |
218 |
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No Sales Charges / Withdrawals |
219 |
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Avoids Probate |
220 |
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Safety / Reserve Requirements |
221 |
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Liquidity / Inflation Protection |
222 |
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No Investment Ceiling / Major Variable Annuity Features |
223 |
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Moving Money from one Vehicle to Another |
223 |
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Free-Look Period / SS Income Exclusion |
224 |
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Investor Control / Professional Money Managers / Unlimited Contributions |
225 |
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Commission Charges |
225 |
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Chapter 6: Annuity Riders |
227 |
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Riders and Annuities / Long-Term Care Benefits |
227 |
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A Long-Term Care Rider is not a Premium Waiver |
228 |
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Guaranteed Minimum Withdrawal Benefit Rider (GMWB) |
228 |
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Guaranteed Minimum Income Benefit Rider (GMIB) |
230 |
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Guaranteed Minimum Death Benefit Rider (GMDB) / Required Premium / How a GMDB Rider Works |
232 |
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Available Benefit Periods / Policy Loans |
233 |
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Life Insurance Riders / What is a Life Insurance Rider? |
233 |
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Guaranteed Insurability Rider (Renewal Provision) / Spouse Insurance Rider |
234 |
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Accidental Death or Double Indemnity Rider / Waiver of Premium Rider |
234 |
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Family Income Benefit Rider / Accelerated Death Benefit Rider / Child Term Rider / LTC Rider |
235 |
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Return of Premium Rider / Other Riders |
236 |
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Chapter 7: Annuitization Options |
237 |
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Withdrawal Privilege Options |
238 |
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Annuitization Ramifications |
239 |
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Qualified and Non-Qualified Annuity Annuitization |
239 |
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Annuitizing the Contract / Life-time Income, Lifetime and Period Certain, Period Certain |
241 |
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Lump Sum, and Joint-and-Survivorship |
242 |
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Example |
243 |
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Nonhuman Payees under a Settlement Option |
244 |
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Lifetime Income Payout Option |
245 |
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Life Annuity, Period Certain Payout Option |
245 |
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Joint-and-Last Survivor Payout Option / Specific Dollar Amount Annuitization |
246 |
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Required Distribution |
247 |
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Loan Provisions |
247 |
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Maturity Dates |
248 |
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Chapter 8: Life Insurance |
253 |
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Participating Whole Life |
253 |
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Interest Sensitive Whole Life / Universal Life / Term Life |
254 |
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Indexed Life / Variable Life Insurance Products |
255 |
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Variable Life / Variable Universal Life |
256 |
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Indexed Life and Indexed Annuities |
257 |
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Basic Interest Crediting Strategy / Five-Year Fixed-Term Interest Strategy |
258 |
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Five-Year Equity Indexed Strategy / Principal Protection / Annual Lock-In of Earnings |
258 |
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Interest Rate Guarantee |
258 |
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Guarantees Among Strategies |
259 |
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Basic Interest Strategy / Five-Year Fixed-Term Strategy / Five-Year Equity Indexed Strategy |
259 |
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Equity Indexed Life Insurance Loans/Withdrawals |
259 |
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Similarities / Differences |
260 |
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Paying for the Life Insurance Contract / Single Premium / Fixed Premium |
261 |
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Flexible Premium / Premium Load |
262 |
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Monthly Life Insurance Deductions |
263 |
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Bands in Life Insurance Policies |
264 |
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Similar to Break Points / Consumer Awareness |
265 |
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Policyholder Risk |
266 |
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Interest Rate Risk / No Lapse Guarantees or Death Benefit Guarantees Risk |
266 |
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Withdrawals / Collateral Assignments |
267 |
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Bucket Investing |
268 |
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“Laddering” or “Buckets of Income” |
268 |
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Strategy Development / Strategies for Buying EI Universal Life Insurance / Over-funding an EI Policy |
270 |
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The IRC and Over-funding Life Insurance |
270 |
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TAMRA / DEFRA |
271 |
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How to Over-fund Equity Indexed Universal Life Insurance |
271 |
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Monthly Deductions / Bonus Rate Annuity / Cash Surrender Values (Life Insurance) |
272 |
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Guaranteed Cash Value |
273 |
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Liquidity Transfer Provisions: Access to Cash Values / Surrenders / Loans |
273 |
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1035 Exchanges |
274 |
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Important 1035 Exchange Procedures |
274 |
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Withdrawal Tax Treatment / Income Tax-Free Death Benefit / Internal Buildup |
276 |
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Withdrawals of Cash Value / Estate Taxation / Annuities and Taxation |
277 |
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Tax Surprises / Withdrawal Impact on Death Benefits |
278 |
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Taking a Policy Loan to Avoid Surrender Charges |
279 |
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Understanding the Purchase |
280 |
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Life Insurance Illustrations Model Regulation |
281 |
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Section 1: Purpose / Section 2: Authority / Section 3: Applicability and Scope / Section 4: Definitions |
281 |
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Section 5: Policies to be Illustrated / Section 6: General Rules and Prohibitions |
284 |
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Section 7: Standards for Basic Illustrations / Format |
285 |
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Narrative Summary |
286 |
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Numeric Summary / Statements |
287 |
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Tabular Detail / Section 8: Standards for Supplemental Illustrations |
288 |
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Section 9: Delivery of Illustration and Record Retention |
289 |
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Section 10: Annual Report; Notice to Policyowners |
290 |
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Section 11: Annual Certifications |
291 |
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Section 12: Penalties / Section 13: Separability / Section 14: Effective Date |
293 |
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Compare Equity Indexed Insurance |
293 |
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What is the financial rating of the insurance company? |
293 |
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What is the illustrated index credited interest rate? |
293 |
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Is there a guaranteed minimum interest rate? |
294 |
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What is the current index cap rate? What is the guaranteed minimum cap rate? |
294 |
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What is the current participation rate? What is the guaranteed participation rate? |
294 |
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What is the index floor? |
294 |
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How many index account options are available? |
294 |
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How many index crediting methods are available? |
294 |
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How long are the index segment periods? |
295 |
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What are the transfer provisions among accounts? |
295 |
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What are the policy charges and fees associated with equity indexed life policies? |
295 |
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How long are the policy surrender charges? |
295 |
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How are loans treated? Do the companies offer fixed or variable loans or both? |
295 |
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How long is the death benefit guaranteed? |
296 |
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What policy riders are available? |
296 |
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Final Analysis |
296 |
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Annual Statements |
296 |
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Chapter 9: Product Suitability |
297 |
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What is Suitability? |
297 |
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Annuity Suitability or Best Interest |
297 |
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Suitability Standards/Best Interest Standards |
298 |
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Determining Suitability |
298 |
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Age of the Buyer / Annual Income / Financial Situation & Needs |
300 |
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Annuity Funding / Financial Experience |
301 |
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Financial Objectives (Do the Math) |
302 |
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Intended Use of the Annuity / Time Horizons |
303 |
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Existing Assets / Liquidity Needs or Requirements |
304 |
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Net Worth / Risk Tolerance |
305 |
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Tax Status |
306 |
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Entering Retirement |
306 |
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Assessing Suitability/ Best Interest |
307 |
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Sales Practices |
308 |
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Product Replacement / Deceptive Sales Practices Forbidden / Full Disclosure / Product Knowledge |
309 |
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Communication Skills / Identifying Suitability Issues/Best Interest Issues |
310 |
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It is Not a Liquidity Issue but Rather a Suitability Issue |
311 |
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Who is the Unsuitable Annuity Buyer? |
312 |
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Annuity Suitability Recommendations |
313 |
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Requesting Information to Obtain Suitability Status |
315 |
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The Legal Side of Suitability Standards |
318 |
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Self-Protection Through Errors and Omissions Insurance |
324 |
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Insurance Agents / Financial Planners |
329 |
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Public Harm / Triggers |
330 |
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Insurance Recommendations in the Real World |
331 |
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Degree of Risk |
333 |
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Risk Classifications |
334 |
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The Burden of Risk |
335 |
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What Type of Documentation? |
336 |
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Claiming Unearned Education or Experience |
337 |
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Full Disclosure |
337 |
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Release of Liability Form / What is Due Diligence? |
338 |
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Fiduciary Duties |
339 |
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Keeping Current on New Trends |
339 |
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Chapter 10: Insurance Ethics |
341 |
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Ethic Subject Matter for Continuing Education |
341 |
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Meeting Education Requirements in a Timely Manner |
342 |
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Example |
342 |
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The Doctrine of Utmost Good Faith / Breach of Utmost Good Faith |
343 |
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Duty of Disclosure / Representations and Warranty |
344 |
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Representations |
345 |
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Warranty / Action Taken by Insurer against a Breach / Principle of Waiver & Estoppel |
345 |
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Guaranty Association |
346 |
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Knowledge of the Product |
347 |
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A Difficult Career Choice |
347 |
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It is a Matter of Perspective |
348 |
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Three Reasons why people seem to find it difficult to save |
349 |
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Establishing Ethical Goals |
350 |
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Example |
352 |
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Why Be Ethical? |
353 |
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Following the Law |
354 |
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Ethics in the Workplace |
355 |
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The Same by Any Name |
356 |
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Putting the Past in Perspective |
357 |
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Personal Values |
358 |
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Companies Set Guidelines |
360 |
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Example: Scenario #1 |
365 |
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Example: Scenario #2 |
365 |
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Promoting Ethical Behavior |
365 |
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Is it possible to teach ethical behavior to others? |
368 |
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What is the scope of ethics? |
368 |
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What does it take to be a moral person? |
370 |
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What quality of work do you want to perform? |
371 |
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What do I want my legacy to be? |
371 |
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The Leaders of the Pack |
371 |
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Example #1 |
372 |
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Example #2 |
373 |
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What are our responsibilities to other moral persons? |
373 |
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Objectivist Ethics |
376 |
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Holding on to our Ethical Code |
377 |
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Example |
378 |
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Sympathy and Empathy |
382 |
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Looking the Part / Courtesy |
383 |
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Mores |
384 |
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Example |
384 |
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Example |
387 |
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Education |
388 |
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Getting Education in a Timely Manner |
389 |
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Product Knowledge |
389 |
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Example |
390 |
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Laying Out Policy Benefits and Limitations |
391 |
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Minimizing consumer misunderstandings |
392 |
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Policy Replacement / Why would an agent replace their own business? |
394 |
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When an Agent Allows Misconceptions |
395 |
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When the Client Thinks the Premiums are too High |
396 |
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Obtaining Proper Application Signatures / Keeping in Touch after the Sale |
397 |
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Selling the “Fast Buck” Item |
398 |
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Commingling Funds / The Professional |
399 |
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Preparing for Tomorrow / Financial Management |
400 |
|
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Due Diligence |
401 |
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If It’s Legal . . . |
410 |
United Insurance Educators, Inc.
PO Box 1030
Eatonville, WA 98328