|All About Annuities|
|Rates and Returns|
Type of Annuities
There are two general types of annuities in the industry, but over the years the media has lumped all annuities into one category; unfortunately for the consumer, this is misleading.
First, we will attempt to dispell some "myths" about annuities.
Secondly. it must be recognized that no one "financial product" is appropriate for every consumer.
The Differences Between "Variable Annuities" and "Fixed Annuities"
"Variable Annuities" = "No Guarantee of Principal"
When the media speaks about annuities they most often are referring to Variable Annuities. A variable annuity is an annuity issued by an insurance company sold by registered representatives of a broker/dealer. Broker/dealers are over seen and regulated by FINRA.
When you purchase a Variable Annuity you have the option of allocating some of your money into the "fixed account" which is essentially a fixed annuity usually with a guaranteed interest rate for the fist year and a interest rate which the insurance company will set in each successive year.
Variable Annuities also offer accounts which are referred to as "sub accounts" which a really mutual funds packaged to be sold as part of a variable annuity.
The money placed in a "sub account" of a Variable Annuity is subject to market risk and has no guaranteed minimum value. Therefore your Principal placed in a sub account of a Variable Annuity is NOT GUARANTEED!
All Variable Annuities are subject to a "Mortality Charge" which can be as low as 0.20 to greater than 1.00% of your total annuity value each year. In addition the is a "fund management fee" which is assessed each year against the value of the "sub account". Again the ranges of fess may be as little a 0.50% to as much as 2.00% for some International sub accounts.
"Fixed Annuities" = "Guarantee of Principal and Interest Earned"
Fixed Annuities are sold by insurance agents or insurance brokers and the insurance company is regulated by the insurance department in each state. Yes, each state has to "approve" an annuity product before it can be sold in that state and the insurance company must be also "approved" as financial sound.
A fixed annuity has no mortality charge, a fixed annuity does not have a "sub account" or "account" that is assessed an annual fee.
A fixed annuity has a declared interest rate and that rate is "net" of all expenses and fees, similar to that of a CD issued by a bank.
Agents and brokers as well as registered representatives and bank employees who sell annuities earn commissions Even CD sold by a bank a "spread" built into the CD, yes, even banks make money selling CD's.
Should you purchase an annuity in a retirement plan?
The interest is tax deferred so why should you pay a fee and why should a tax deferred product be used in a retirement plan. It's the rate of return you earn! If you can buy an Fixed Annuity MYGA with a 4.00% 5 Year Guaranteed Interest Rate and it is the highest guaranteed interest rate you can find. Why not?