TYPES OF ANNUITIES

Choosing an annuity is an important step for many people. It's best to understand the different types of annuities before choosing one. For answers to any questions about annuities that are not answered by this article, contact one of our agents.

Fixed Annuities

State insurance departments are responsible for regulating fixed annuities. In this type of annuity, the insurer guarantees a minimum interest rate and the principal amount. Insurance companies that are financially stable will be able to offer annuities that grow instead of losing value. The following are the different ways an annuity's value may grow and be paid:

• Fixed Dollar Amount
• Specific Formula
• Interest Rate

The benefits and growth of the annuity do not depend entirely on the performance of the insurance company's investments made to support it. Some annuities are credited with a higher interest rate than the minimum by a policy dividend that the company's board of directors must declare. To learn how this dividend may be obtained, speak with an agent. There are also different types of fixed annuities, including:

Equity-Indexed Annuity. Although this is a type of a fixed annuity, it appears similar to a hybrid. Equity-indexed annuities credit a minimum rate of interest in the same way fixed annuities do. However, they also have a value that is based on a specified stock index's performance. The value is generally calculated as a fraction of the total return of the index.

(...continued)

(...continued from previous page)

Market Value Adjusted Annuity. This type of product combines two great advantages:

• The ability to choose and set the interest rate and time period for the annuity's growth term.
• The option to withdraw funds from the annuity prior to the end of the selected time period.

The flexibility for withdrawal is made possible by raising or lowering the annuity's value to reflect the interest rate's market change. This is calculated from the beginning of the chosen time period to the point when withdrawal is made.

Variable Annuities

In addition to being regulated by state insurance departments, variable annuities are regulated by the Securities and Exchange Commission. The money contributed toward a variable annuity is invested in a specific fund. This means that the amount of money paid to an individual in this type of annuity is determined by the fund's investment performance. Most of these annuities are designed to offer several alternatives to investors.

Other Types of Annuities

There are several other types of annuities. However, all of the following types of annuities can be obtained in the form of a fixed or variable product.

Fixed Period vs. Lifetime. Fixed period annuities pay for a specific time period. The amount paid depends on how much is contributed toward the annuity, an interest rate designated by the company and the length of the payout period. As their name indicates, lifetime annuities provide income for the rest of an individual's life. Payment amounts depend on age, interest and the amount paid into the annuity. A pure lifetime annuity features payments that stop after the annuitant dies, which may be a very short time after the purchase.

Qualified vs. Non-Qualified. Qualified annuities are used to invest and disburse funds into a tax-favored retirement plan. It's important to speak with an agent to learn what kinds of plans qualify and what kinds of plans have the most attractive tax benefits. Non-qualified annuities are purchased outside of a tax-favored retirement plan. In this type of annuity, earnings are tax-deferred until they're withdrawn.

Deferred vs. Immediate. Deferred annuities receive premium and investment changes for future payouts. Immediate annuities pay a specific amount of time after the product is bought. This time period depends on the frequency of income payments. It's important to know that the period may be very long. In some cases, these annuities are deferred for several decades.

Single Premium vs. Flexible Premium. Single premium annuities are funded by one payment. This amount can be invested to yield a long-term growth or on a short-term basis. These annuities are often funded by the money from appreciated asset sales. Flexible premium annuities are funded by a series of payments. Since they are designed to have a significant growth and investment before withdrawal, they're classified as deferred annuities.

* Liquidated earnings are subject to ordinary income tax, may be subject to surrender charges and, if taken prior to age 59 1/2, may be subject to a 10% federal income tax penalty. Guarantees and payment of lifetime income are contingent on the claims paying ability of the issuing insurance company.

SOLVING TARGET DATE FUND RISKS

The matter of how much investors should invest in stocks at retirement has been debated in recent years. The pace at which the less-risky investments should be transitioned has also been debated heavily. This has especially affected investors who relied on their target-date funds. These funds render investors' asset allocations as they near retirement eligibility. Many investors have agreed with advocates and Washington officials who are asking for an approach that is more conservative. However, there are some important points to consider before choosing a side.

If a proper percentage of equity allocation is implemented, investors have a larger likelihood of making their retirement money last. This practice must also be combined with a proper withdrawal percentage of the original balance from the retirement point. Past economic decline validates this idea clearly. Companies in this scenario use a plan with a span of 20 years.

There are also companies that have assessed the allocation of their prime assets to ensure they yield optimal results for investors. Although not all companies have evaluated their assets, there is pressure from competitors to do so. Gradual equity transitions seem to benefit investors more over the span of 30 years than conservative approaches do. Companies in this type of scenario use a 30-year time period. In this scenario, investors are at a higher risk of feeling the impact of inflation. They need payouts for continuous support. However, they also have the benefit of more time for market correction following a downturn in the economy.

For investors, asset allocation debates are commonly called flat vs. through. This is due to the critical subject of whether individuals should ease out of higher equity percentages during the retirement period. The opposing subject is whether more conservative plans are needed until the point of retirement. When people consider their individual status, they need to consider their true needs for cash flow. The reason there is a debate between flat and through is because each one works for different people. However, one option isn't better for everyone than the other. Individuals need to consider their unique situation to determine which option best fits their needs.

Following several significant discrepancies in fund performance in previous years, the government analyzed this situation. This analysis brought forth the intention to make information about risks and benefits readily available to fund sponsors and participants. Fewer rewards is the result of taking less risk in this matter. This rule is also true with most other types of investments. Since there is more competition with inflation rates for retirees, they will require capital-building investments to avoid running out of money.

It's important for individuals to protect their capital whether they expect a long or short lifespan following retirement. The situations retirees face today are more complex than in the past. Because of this, it's important for every individual to weigh the pros and cons of each available option. It's important to understand the impact of possible economic difficulties in the future. Before making any decisions, be sure to speak with an agent to discuss all available options.

GETTING READY TO RETIRE? GO OUT WITH FLYING COLORS!

Congratulations! You have only a few short years to go until you can retire officially. You might have lots of plans for visiting your kids and grand-kids, and for taking up new hobbies to keep yourself busy when you retire.

But have you made any plans for the next few years of your life at work? Wouldn't it be boring not having new and exciting challenges anymore? You probably don't want your last years at work to be stagnant, do you? Well then, make sure they aren't! Retirement will come when it comes. Until that day, you want to remain as active and energetic as possible. How can you best accomplish this? How can you make the last couple of years at work as pleasant and enjoyable as possible?

You can actually make your last few years the best. Here are some ideas:

• Tell your manager that you want to make a real contribution during your last couple of years at work. Or, if you are the boss, just do it! Are there any particular projects with a three or four year window to which you could be assigned?
• Take time to be a mentor to the younger staff people. They might already come to you looking for wisdom. Offer them advice or help them to learn an additional skill set. Gently point out things they might want to consider improving. Listen to them when they want someone to just talk to.
• Volunteer to be on some committees. Even chair a few. You have the knowledge and experience of knowing what has and hasn't worked in the past. The organization needs you.
• Prepare the way for your replacement by starting a journal or work log recording problems that arise and how you resolve them. Make sure all the procedures and policies are updated. Offer to train staff that might be interested in learning about your job.

There are lots of things that you can do to make your last couple of years pleasant, productive, and enjoyable for you and your co-workers.

If you do these things, you just may find that you will enjoy the next years more than all of the rest of your career combined. Go out with a bang! Make the most of your last years at work.