The FERS includes the Thrift Savings Plan (TSP) and other benefits available to employees of the federal government. The eligible features of FERS may be different for the employees of different branches and agencies of the government. Civilian and military personnel are included in FERS. FERS is essentially comprised of the Thrift Savings Plan (TSP), which is a 401(k)-type plan for federal employees, and, in most cases, a Federal employee retirement annuity. The Thrift Savings plan has lower fees than most 401(k)s and offers several kinds of index funds to employees. Continue reading...
Lifetime income annuities provide a guaranteed payout over the life of the annuitant. “Payout” is not a term used officially, but it denotes that the principal amount invested in the annuity is designed to be paid out and depleted over the life expectancy of the annuitant. The payout rate is competitive with other sources of retirement income. Life insurance companies created annuity products as a way to guarantee a client never runs completely out of money. Statistically, according to some surveys, elderly people are more afraid of outliving their money than of nearly anything else. Today medicine can keep people alive longer and longer but not functioning at full capacity, and certainly not able to generate more income in most cases. Continue reading...
Income annuities are used by people in retirement to give them a steady, dependable stream of income until they die. It is a financial product sold by a life insurance company, which serves as a kind of longevity insurance, so that people cannot outlive their money. People often roll lump sums from 401(k)s into these plans. Though inflexible, the income payout rate is designed to be appealing when compared to most retirement investments. Continue reading...
Annuities allow you to designate beneficiaries, but the payouts or benefits they receive depend on the wording in the contract, and can vary greatly. Annuities, even if they are designated as Individual IRAs or qualified accounts, can have joint annuitants. This way, if an income stream has been elected that is joint-life, then your beneficiary, whether a spouse or even a younger family member, will continue to receive payments for life. These options can all be elected at purchase. Continue reading...
In a “life with period certain” annuity payout option, the insurance company will pay the annuitant a set income for as long as the annuitant lives. If the annuitant dies before the “period certain” expires, the company will continue to pay the income to the beneficiaries until the period certain expires. If the period certain is 20 years, it would be called a “Life with 20 Years Certain” payout option. Continue reading...
Annuities are primarily designed to pay a substantially similar sum at regular intervals until the annuitant dies. Life insurance companies write these contracts since they are designed as a kind of longevity insurance. A lifetime income annuity, sometimes called a life annuity, is a stream of guaranteed payments for the duration of the annuitant’s life, based on the sum used to purchase the lifetime income and the age of the annuitant at the time of purchase. Life annuities can also be joint-life, meaning the contract will pay an amount to either of two people as long as one is alive. Continue reading...
Annuities are unique products in that they provide the owner with tax-deferred growth, much like an IRA or a Roth IRA. Annuities can provide the owner with some tax benefits, in that the growth of the principle grows tax-deferred. Once you are ready to withdraw the money, your earnings will be taxed at your ordinary income tax rate, though the amount you contributed to the annuity will not be taxed. Continue reading...
Annuities are financial products/contracts generally sold by insurance companies to protect an investor’s assets against downside market risk and long life expectancies. Investors have to pay premiums/fees in order to secure the guarantees. Annuities are very important investment instruments, and can be an indispensable part of your overall investment portfolio. Keep in mind that annuities are very aggressively marketed, and it is very important to understand exactly how they work. Continue reading...
The “Joint and Survivor” option on annuities generally provides an income guarantee for the owner and his/her spouse. This option can be applied to an IRA or qualified plan, even though that can only have one owner. Payments from an annuity, even if it is part of a qualified plan or IRA which can only technically have one owner, can be based on two annuitants. This will usually be a married couple, and it ensures that either spouse will receive payments from the annuity, even if one pre-deceases the other. Sometimes the survivorship payout is only a percentage of the original payout, such as 50% or 70%, but this is agreed upon by the annuitants at the time of application, and cannot be changed arbitrarily by the company or the annuitants. Continue reading...
The Period Income option or Guaranteed Period option on Annuities means that the entire balance, plus some interest, will be paid out to you in equal amounts over the course of a set number of years. This option may fulfill a specific need for income in a certain time of life. It used to be slightly more attractive to investors when interest rates were higher, but, today, the low interest rate environment does not give insurers enough time to generate interest for these sorts of payouts. Continue reading...
Choosing the “Life Only” option will turn your annuity balance into income that will be paid only to you, and will last only as long as you live. Annuities can be turned into income streams that are guaranteed to either remain the same or to increase based on an inflation-adjustment rider. The payout rate will be determined based on the length of the annuitant’s life expectancy, the amount being converted to income, whether annual increases are part of the contract, and what provisions are made for beneficiaries or joint annuitants. Continue reading...
Fixed annuities, generally speaking, are annuity products that give the purchaser of the annuity the guarantee of fixed income payments for life. Annuities must come with the option to be paid out in equal payments either over a certain number of years or the lifetime(s) of the annuitant(s). This is the case for variable and fixed annuities, and these payments will be fixed and guaranteed. Where they differ is how they are invested before any annuitization takes place. Continue reading...
There are fixed annuities, fixed/indexed annuities, variable annuities, hybrid annuities, income annuities, period income annuities, and possibly more. Insurance companies, and the insurance subsidiary wings of investment companies, have had many years to develop strategies and marketing ploys that help clients accumulate, protect, and distribute assets within various kinds of annuities. Variable annuities allow the annuitant to participate in the market through mutual funds — or, more accurately, “separate accounts” that mimic mutual funds. Continue reading...
Payout options in the realm of annuities tend to be guaranteed by the insurance company providing the annuity, and may come in many forms depending on the investor’s preference. Annuities can pay income to the annuitant in a few ways. One of the ways is to turn the entire balance of the annuity into a pension-like income stream for life, or jointly on two lives. The payout tends to be higher than the safe withdrawal rate than investors can use in an investment account, and it provide guarantees and surety where it wouldn’t exist otherwise. You can also elect to have these payments start off slightly lower, and then to increase at a guaranteed rate, to keep up with the cost of living. Continue reading...
Variable annuities generally provide investors with downside protection for a fee (the insurance guarantee), while also providing market exposure that may give the investor upside potential. A variable annuity is characterized by offering market exposure, and the risk and upside potential that comes with it, in the form of “separate accounts” which are institutional-level mirrors of retail mutual funds. Typically a variable annuity will not deplete the amount of your initial investment with sales charges, and may even credit your annuity with an initial bonus amount of several percent. Continue reading...
Annuities are generally the most costly financial product, because the investor has to pay fees/expenses in order to secure the insurance guarantees offered. Investors should take care to examine and understand all of the fees and expenses associated with annuities before purchasing. Many annuities are sold by insurance salesmen or commission-based advisors who will receive a commission around 5% or more. These charges are not always apparent to you up front, as they do not usually come out of your actual principal according to your account balance. Continue reading...
Rule 72(t) allows the owner of a 401(k) or IRA account to take “substantially equal periodic payments” from an account without owing the 10% early withdrawal penalty. Taking money out of a401(k) or IRA before age 59½ will generally cause someone to owe a 10% early withdrawal penalty. One of the ways this penalty can be avoided, however, is if the participant uses 72(t) distributions. IRS rule 72(t) is the section of the code that describes early withdrawal penalties, but it also allows “substantially equal periodic payments” to be taken from a 401(k) or IRA without owing the 10% penalty. Continue reading...
The investment options in an annuity depend on the insurance company offering the product. The investment options are generally limited, however. If you decided on a Fixed Annuity, the insurance company agrees to pay you a fixed percentage for a set period of time – the rest is completely handled by the company. Usually, this percentage is higher in the beginning (teaser rate), and might go down periodically. Continue reading...
Annuities are financial products developed and sold generally by insurance companies, and they are designed to protect an investor’s principle against the risks of market fluctuations and longevity (life expectancy). Annuities get their names from a series of payments which are based on an annualized payout rate. Annuities formerly just offered fixed payments for life, like a pension, and they were developed by life insurance companies who would use their mortality tables to determine the payout rates. Continue reading...
Different 401(k) custodians will have different distribution options available to participants in retirement. After you retire, you have at least two disbursement options: lump-sum distribution and periodic distribution. If you take a lump-sum distribution that is not bound for an IRA, you will incur a significant tax bill, since all 401(k) distributions are taxable. Periodic distributions may mean that every so often you can choose an amount to be paid out to you on a quarterly basis, for example, while your investments remain intact and you attempt to accrue more interest on your money. Continue reading...