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Annuity Professor exposes Annuity Myths
2007-04-27 02:57:00
ANNUITY MYTH #4: TAXES HIT VARIABLE ANNUITY OWNERS HARD. Mutual funds force income and income taxes on investors even if they do not need income or want the taxes associated with it. This also can happen even when the mutual fund loses value. My variable annuities have grown tax-deferred for many years, which allowed me to avoid income taxes when I was in a tax bracket of 40% or more during my peak earning years. In retirement, my variable annuity income will be subject to taxation of 15% which leads me to the next Variable Annuity Myth . Annuity MYTH #5: TAXATION IN RETIREMENT IS PROHIBITIVE I plan to supplement my retirement pensions with withdrawals from my variable annuities. Under current tax law, my wife and I can have a total retirement income of $90,000 and with my exemptions and deductions ($23,350) have a taxable income of $66,650. At this income level, our ordinary income tax liability to the IRS will be 15%. Many of my friends who own mutual funds and stocks plan to supp...
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Annuity Myth #3 Trading Within The Annuity Cost The Owner
2007-04-27 02:52:00
One of the major reasons that I own variable annuities is that once one is purchased, and for as long as it is owned, all trading among the variable annuity’s investment selections may be accomplished without having to pay any commissions__and it’s tax deferred. This is true even if such trading involves moving from one fund family to a different one. This benefit is not available with taxable mutual funds or stocks. For example, a variable annuity investor whose $50,000 annuity has doubled in value can move his entire $100,000 investment from one investment management company’s subaccount to an entirely different one within his or her annuity without incurring any income tax liability! An investor who purchases and sells a mutual fund or stocks on the same facts would incur both additional income taxes and commissions. The A nnuity Professor has all the answers on investing in an Annuity . Contact the Annuity Professor to get expert advice on annuities.
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Variable Annuities Myth #2
2007-04-26 04:57:00
The average variable annuity purchased today will have an annual ownership cost of approximately 2.35%. This figure includes the cost of the death benefit provided by the variable annuity, allows the variable annuity company to recoup the commissions it advances to the financial advisors who sell its variable annuities and enables the variable annuity issuer to compensate the professional who manage the investments held in the variable annuity. When commissions, annual taxes and fund expenses are taken into consideration, the average mutual fund will have costs that can easily approach 5 percent every year! I have kept performance records over the years and have learned that my variable annuities, due to their lower annual costs, have consistently outperformed equivalent mutual fund investments. Subscribe to the Anuity Professor Blog RSS feed to learn about Annuities and Annuity Investments.
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Variable Annuities Myths
2007-04-26 04:52:00
There are many myths about investing in Variable annuities. Here is myth #1.OWNERS PAY COMMISSIONS. Unlike most mutual funds and stocks, variable annuities do not impose upfront, out-of-pocket commissions. Instead, annuity companies advance commissions to the professionals who sell their variable annuities and impose a contingent deferred sales charge. This sales charge requires the owner of the annuity to repay the annuity company any commissions it has advanced if the annuity is not held for an agreed period of time, which averages about six years. This procedure allows the variable annuity company to recoup its advanced commissions over time. On average, these sales charges start at 6 percent and drop to 1 percent over a six year period. At the end of the holding period, the CDSC expires. By keeping the variable annuities, I have purchased for the agreed holding period, I have been able to avoid paying any upfront, out-of-pocket commissions completely.
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Taxation of Social Security
2007-03-26 04:01:00
Social security retirement income is not subject to income taxation unless a recipient reports other income that causes his total income to exceed certain limits. Most retired people in the mid-60’s receive social security checks as part of their retirement income. For many retired people, social security can make up a large portion of their retirement income. Mutual fund distributions frequently raise income levels for retired people resulting in the taxation of their social security income. Because variable annuities do no make distributions, the mere ownership of a variable annuity cannot cause an owner’s social security to be taxed. Single taxpayers who have adjusted gross incomes of $25,000 or more and married couples who have adjusted gross incomes of in excess $44,000 are subject to having from 50% to as much as 85% of their social security retirement income subject to ordinary income taxes. This addition tax burden can be a major problem for retired persons who own mutua...
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National Sales Tax
2007-03-22 15:29:00
The current income tax structure in the United States is under attack by politicians and taxpayers a like. One possible alternative to our current income tax code would be to replace it with a national sales tax or consumption tax. If such a tax is adopted in the future, variable annuity owners will benefit greatly while mutual fund owners will suffer. Tax reform is one of the major election issues concerning both politicians and voters alike. It is quite possible that our current income tax system could be replaced with a sales or consumption tax sometime in the future. Variable annuity owners will reap a huge windfall if this occurs. Variable annuity owners who have deferred income taxes for many years may completely avoid income taxes in retirement if the current income tax structure is indeed replaced by a sales or consumption tax. On the other hand, mutual fund owners who are currently paying income taxes each year on their portfolios will be the big losers if a sales or consum...
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Tax Reduction through Annuitization
2007-03-14 20:03:00
If a variable annuity owner elects to annuitize his annuity, his tax burden will be reduced significantly. Income tax reduction through annuitization occurs by application of the exclusion ratio. The exclusion ratio ensures that money invested in a variable annuity that has already been taxed is not taxed again when it is withdrawn at a later time. A few examples might help demonstrate application of the exclusion ration. Example #1: Doug, who is 65 and retired, has a variable annuity worth $500,000. His investment in the annuity is $250,000. Doug's $250,000 investment in his annuity was previously subjected to income taxes. Dough has elected to take money out of his annuity as he needs it. Because Doug has not formally annuitized his contract, any withdrawals he makes are considered gain and are fully subject to ordinary income taxes. As discussed earlier, if Doug is in a 27 ½% marginal tax bracket, he will probably pay an average tax of about 20% on his withdrawals. Example #2: ...
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Taxation of Variable Annuities
2007-03-13 03:09:00
The importance of tax deferral will become even more evident as the taxation of variable annuities is discussed below. The long-term investing in mutual funds will result in taxation at a 20% capital gains rate is not always the case. Just as inaccurate are statements made about the taxation of variable annuities. Many variable annuity articles claim that variable annuity owners in, say 27 ½% marginal tax bracket, will pay 27 ½% in ordinary income taxes on withdrawals made from their annuities. Statements such as these are misleading and often cause investors to make incorrect investment decisions. Investors who invest in variable annuities over a long period do not pay current income taxes on the growth in their variable annuities. This benefit arises because variable annuities are income tax-deferred wealth accumulation vehicles. Variable annuity owners realize that at some point in the future they will want to withdraw money from their annuities. When this occurs, income taxes ...
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How Tax Deferral Increases Future Income
2007-03-09 22:24:00
 Tax-deferred investments, like variable annuities, almost always provide more after-tax income than taxable investments such as mutual funds. This is true even if the owner of the tax-deferred investment is in a high income tax bracket. Example: Dave and Donna are twins. Twenty-five years ago, Dave decided to put $10,000 a year into a mutual fund portfolio. At this same time, Donna elected to put $10,000 a year into similar investments in a variable annuity. Dave and Donna both received an average annual return of 12 ½%. Today, Dave’s account has $923,240 in it. Donna’s variable annuity, due to tax deferral will contain $1,445,553. If Dave and Donna receive 10% from their respective nest eggs each year and pay 20% and 25% respectively in income taxes on those distributions or withdrawals, Dave will net $74,659 and Donna will net $108,416. Donna’s net retirement income will exceed Dave’s by $33,757 each year for the rest of her life!
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Your Two Greatest Enemies; Inflation and Taxes. Investing and Planning your
2007-03-06 02:43:00
 The cost of living:   1927 1932 1937 2007 Gallon of Milk $.56 $.43 $.50 $3.00 Loaf of Bread $.09 $.07 $.09 $1.97 New Auto $475.00 $540.00 $675 $23,00+ Gallon of Gas $0 $.10 $.12 $2.30 New Home $7,600 $6515 $6622 $221,000 Income $1,358 $1,472 $1,327 $34,344 Dow Jones 202.40 59.93 120.95 12,317 One needs to invest in equities (stock, mutual funds) for an inflation hedge. But what if we have another stock market collapse like we had in 2001-02? And you lose 40-60% of your investment resources? Could you afford that? Today, one can invest in mutual funds inside a Variable annuity with some protection, or a safety net. Today’s modern variable annuities can protect you money from market declines and provide you predictable guaranteed income from your resources for life. Many variable annuities lock in your account value on each policy anniversary, and guarantee this value as an income and death benefit resource for life!
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On Track With Your 3 Retirements?
2007-02-24 06:24:00
Are you saving for all three of your retirements?  We know that saving for one retirement can be daunting enough.  But the traditional notion of "retirement" has been undergoing a radical revision. Thanks to more healthful lifestyles and medical advances, retirements are longer than ever.  Indeed, a 65-year-old who retires today can expect a post-career life to last 20 years or more. But that "radical revision" doesn't simply refer to longer retirements. Generally, retirements are morphing into three phases: Phase 1: Working Retire d - continued work or volunteerism.Phase 2: Leisure Years- play, travel, family and leisure activities and finallyPhase 3: Homeward Bound - a more sedentary period that centers on home and health care issues. Each phase presents its own financial demands.  And each phase is best handled when preceded by proper planning. Working Retired A 65-year old male has a 49.3% chance of living to 85.  A 65-year...
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What you need to know about LIFETIME INCOME Variable Annuities
2007-02-05 15:14:00
The idea behind the LIFETIME Income Benefit is easy to understand. If you purchase a variable annuity that has a Lifetime Income Benefit, the annuity company will guarantee to pay for a lifetime. For example, if you invested $100,000, you would be able to withdraw 4.5%, 5%, 6%, 6.5%, 7%, or even 7.5% for life depending on the annuitant’s age when withdrawals begin even if one’s account value falls to zero! Let’s assume you are age 70, with some Lifetime Income Benefits (LIBs), one could begin withdrawing 5.5% for life, and then have the ability to reset the contract at age 75 to increase the withdrawal to 6% for life. As one gets older, there is an opportunity for increased income to overcome the inflation obstacles. With this feature, one can have the peace of mind knowing that one cannot outlive their assets. This feature is perfect if you and your spouse are anticipating a lengthy retirement. The Lifetime Income Benefit is very different from the Guaranteed Minimum Withdraw...
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Guarantee Minimum Income Benefits with some Variable Annuities is a good th
2007-01-30 15:45:00
With insurance company competing for potential investors, today's variable annuities off all kind of wonderful, client friendly features and benefits that were not available just a few years ago. The Guarantee Minimum Income Benefit (GMIB) is a guarantee that one will always have income available from one's investment resources. A Guarantee Minimum Income Benefit (GMIB) ensures that if you purchased your annuity during a market peak and required income during a market trough, you would always be guaranteed a predictable level income to fund your retirement years. For example, let's suppose you invested $100,000 into the Equitable Accumulator Plus Annuity at age 69. First you would receive a 4% bonus or $4000. After one year, you began withdrawing 6% annually, or $6000, for the next 15 years. And during that time, the market was flat, and there were no gains on your investment, and even some negative years. Over fifteen years, you withdrew a total $90,000. Because of annual syst...
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Life Settlements could put more money in your pocket!
2007-01-27 04:56:00
 Life Settlement s could put more money in your pocket! About a year ago, I was approached by one of my radio listeners who wanted a financial plan and wanted me to review his retirement portfolio. He told me that he owned a life insurance policy with a million dollar death benefit. His children were grown and he felt that he did not need the policy any longer and he told me that he wanted to drop the policy. He could not afford to continue the annual payments. The annual premium was $43,000 and the cash value of the policy was $73,000. He said that he was planning to call his insurance company and tell then that he wanted the cash value of the policy. I told him that there was a tremendous secondary market for life insurance policies, and told him the we could approach the life settlement market and he could sell his policy for much more than the $73,000. I went to work for him, received several offers and finally sold his policy for, listen to this, $350,000! He was overwhelme...
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It’s easy to donate to charities without draining your pocket cash
2007-01-26 14:17:00
I am getting more and more inquiries as to why wealthy people would want to sell their insurability for cold hard cash. I recently wrote several columns recently on life settlement. Many individuals between the ages of 70-85 that have a minimum net worth of $2 million allow outside firms (mostly Wall Street investment firms) to purchase life insurance on them and collect the death benefit when they die. Why would anyone do that? Because these firms pay big money! Many people us this found money for new cars, vacations or gifts to children. Some even use it to buy extra life insurance. But, many use it to help the charities that they love, and this is a great thing. Life settlement is where an investment firm offers to purchase life insurance on someone ages 70-85. An insurance premium financing company pays the premiums. When the person dies, the investment firm collects the death benefit. In order to induce individuals to leverage their insurable interest, investment firms pay ...
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