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John L. Olsen |
January 3, 2014 |
Annuity Basics, Annuity123, Deferred Annuities, Immediate Annuities, John L. Olsen, Member Posts
In the workshops and classes I teach, I often remark that “one good thing about deferred annuities is that they get tax deferral (that the interest earned is not taxed until it is distributed in a withdrawal or surrender); one bad thing about them is that they get tax deferral”. That’s not merely a lame joke. It’s a recognition that tax advantages always come with a cost. In the case of deferred annuities, the “cost” of tax deferral is twofold: All distributions from any annuity,...
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John L. Olsen |
November 18, 2013 |
Annuity Basics, Annuity Definition, Deferred Annuities, Fixed Annuities, Immediate Annuities, Index Annuities, John L. Olsen, Member Posts, Variable Annuities
If you’re like most people, you find the subject of annuities confusing. Just the terminology would befuddle anyone – “exclusion ratio”, “annuitization”, “indexed”, “cap rate”, “participation rate”, etc. As if that weren’t enough, the terms are not applied uniformly. Some writers about annuities refer to the kind that produces an income immediately after purchase as an “immediate annuity”; others call it a “payout annuity”. “Equity index annuity” and “fixed indexed annuity” are used almost interchangeably to refer to the same type of contract. And some...
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John L. Olsen |
November 5, 2013 |
Deferred Annuities, Immediate Annuities, John L. Olsen, Member Posts, Surrender Charges
Surrender charges are imposed by most, but not all, Deferred Annuities (Immediate Annuities generally impose no surrender charges because most Immediate Annuities cannot be surrendered for cash). It is vitally important that prospective buyers fully understand the impact of these charges on the Deferred Annuity’s cash surrender value, when they’re imposed, and when they’re waived. Some critics of annuities assert that surrender charges are wholly unattractive, that they always work to the buyer’s disadvantage. This is neither accurate nor fair. Let’s look, now, at how...
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John L. Olsen |
October 25, 2013 |
Annuity Beneficiaries, Annuity Taxes, Deferred Annuities, John L. Olsen, Member Posts
If you own, or are considering buying, a deferred annuity and are thinking of having a trust own or be the beneficiary of that annuity, you need to be aware of the tax consequences. In this article, we’ll examine those consequences. But before we start, we need to be clear on two things: First, the author is not an attorney and is not giving you tax or legal advice. You should consult your legal advisor for that. Second, the tax treatment describe here applies only...
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John L. Olsen |
October 1, 2013 |
Annuity Basics, Annuity Suitability, Annuity Taxes, Deferred Annuities, Fixed Annuities, Immediate Annuities, Index Annuities, John L. Olsen, Member Posts, Miscellaneous Annuity Info, Variable Annuities
If you are considering the purchase of some kind of annuity, you know what you want and need. But how can you determine whether the annuity product being recommended to you will meet your needs better than a different kind of annuity or some non-annuity alternative (such as a CD or mutual fund)? And how did the insurance agent showing you the annuity decide that the product he’s showing you is the one most suitable for you? The answer to both questions lies in that...
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John L. Olsen |
September 18, 2013 |
Annual Reset, Annuity Basics, Annuity Caps, Annuity Definition, Index Annuities, John L. Olsen, Member Posts, Participation Rate
There are several different kinds of index annuities, but the “Annual Reset” type is the most commonly sold (and bought). The name refers to the interest crediting period – the length of time over which gains and losses in the equity index (often, but not always, the S&P500®) will be measured and index-linked interest will be calculated and credited. There are different types of annual reset annuities. Some measure monthly index movements, from which they calculate and credit interest annually (the “Monthly Sum” or “Monthly...
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John L. Olsen |
August 16, 2013 |
GLWB Rider, Index Annuities, John L. Olsen, Member Posts, Variable Annuities
“Lifetime withdrawal benefits” are very popular these days; most of the indexed or variable deferred annuities sold today are bought by consumers who paid extra for this “rider”. Regrettably, all too many of those buyers believe that, for that extra cost, they will earn a guaranteed “investment return equal to the “rollup rate” of the annuity. They won’t. They will get a guaranteed amount of income, but that’s not the same thing. Let’s define our terms. A “Guaranteed Lifetime Withdrawal Rider” (usually abbreviated as GLWB)...
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John L. Olsen |
August 6, 2013 |
Annuity Beneficiaries, Deferred Annuities, John L. Olsen, Member Posts
With regard to “who gets the money” in a deferred annuity, the answer is not quite as simple as many believe. The simple answer is “the beneficiary named in the policy” and that’s true much of the time – but not always. Let’s start with some basics in annuity contracts: –Annuitant: Person (must be a human being) whose age and sex determine the amount of income payments. –Owner: Person or entity (in need not be a human being) who owns the rights in the annuity...
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John L. Olsen |
July 30, 2013 |
Deferred Annuities, GLWB Rider, John L. Olsen, Member Posts
FACT #1: The economic benefit of payments under a Guaranteed Lifetime Withdrawal Benefit rider (GLWB) doesn’t materialize until after you’ve received your principal and all of your earned interest. Here’s an example: At your age 55, you deposit $100,000 into a deferred annuity with a GLWB rider that guarantees a “roll up” interest rate (on the “benefit base”, on which the withdrawal payments are calculated) of 7.2%, compounded for ten years (which is the same as 10% simple interest). That produces a benefit base of...
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John L. Olsen |
July 22, 2013 |
Deferred Annuities, Fixed Annuities, Immediate Annuities, Index Annuities, John L. Olsen, Member Posts
One of the difficulties in working with annuities is the persistent mythology connected with them. Much of the “conventional wisdom” regarding these contracts is not “wise” at all, but is often mistaken, confused, or downright wrong. Here are five of my favorite “myths”: 1) “Annuities are…” Any sentence that starts this way will be misleading at best. Why? Because all annuities are not the same. Indeed, a true statement about deferred annuities is likely to be partly or wholly untrue when applied to immediate annuities,...
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