Annuities Have S.T.Y.L.E.

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Mnemonic devices are used everyday, to remember the names of the presidents, the date of some important historical event, and now, we can also use them to remind us of the advantages annuities have to offer.

Annuities have S.T.Y.L.E.

S is for Safety
. . . which annuities offer in spades. All fixed annuitities have guaranteed rates, making sure that no matter what happens in the market, your money is safe. If participating in the gains of the stock market is attractive to you, however, equity-indexed annuities offer the potential to participate in the gains, yet still be protected against the losses of the stock market – your premium stays safe, and you continue to earn a minimum guaranteed rate, but market performance guides your potential gains. Because life insurance companies offer annuities, state law and the financial strength of the insurance industry protect your money. The insurance companies that issue them are legal reserve companies, and as such, they are required by law to maintain substantial reserve funds to meet all their contractual obligations. These companies are also continually scrutinized by third-party companies and rated for safety by trusted names like Standard & Poor’s, Moody’s, and the industry’s leading rating service, A. M. Best, so you can quickly assay the historical stability of a particular company to enhance your peace of mind. In many states, annuities often enjoy enhanced protection from creditors, as well.

T is for Tax Deferral
. . . which goes hand in hand with compound interest. With tax deferral, you don’t pay taxes on your earned interest until you use the money. This lets your savings grow in three ways: the interest you earn on your premium, the interest you earn on your accumulated interest, and the interest you earn on the money you didn’t lose to taxes. You may pay taxes on your earned interest eventually, but you’ll have built up a substantially larger nest egg in the meantime. Tax deferral puts you in control, letting you choose when to pay those taxes, which is important because it’s not just what you earn, it’s what you keep that counts!

Y is for Yield
. . . an arena where annuities consistently outperform CD’s and many other taxable savings plans. Annuities are offered at competitive, market-based interest rates, and historically, have offered a 1 to 2 percent advantage over CD rates. Demonstrably higher yields combined with the benefits of tax deferral make annuities a best bet for maximizing your accumulation of retirement savings.

L is for Liquidity
. . . another area where annuities shine because annuities give you access to your money in ways other savings plans don’t. Most annuities have withdrawal provisions that provide you with penalty-free access to some of the value in your savings. Most annuities can also be annuitized penalty-free at any time (in other words, converted into a series of payments). Most annuities also offer living benefits which can give you access to all or part of your money should you become confined to a nursing home, diagnosed with a terminal illness, disabled, or unemployed.

E is for Estate Planning Advantages
. . . where annuities allow for immediate transfer of benefits to your designated beneficiaries. Annuities aren’t subject to the cost, hassle, delay, and lack of privacy of the probate process. Also, income taxes on the gains in your annuity are paid by your beneficiary, not by your estate (unless you have no designated beneficiary, in which case your estate is the beneficiary). Annuities also, if set up properly, allow you a great deal of flexibility in the naming of beneficiaries. You can name your spouse, your children, a trust, or a charity as your beneficiary. And these are just a few examples; the list of possible beneficiaries is longer. Any benefit is then taxed according to the tax rate of the beneficiary. Your beneficiaries get their money immediately, and without legal fees or public scrutiny. What’s more, you can name primary and secondary beneficiaries, so if for any reason your beneficiary is no longer in a position to receive funds, the benefits can be immediately transferred to a second named beneficiary, and you can change your designated beneficiary at any time.

No other savings plan offers all these advantages, and we’ve only just scratched the surface of these topics here. Please call us at 334-685-1805 for a free consultation on how annuities might work for a portion of your retirement savings.

Just keep in mind that annuities have S.T.Y.L.E.

NOTE: This article is not intended to give tax advice for any particular situation, nor does it provide estate planning advice for any particular situation. These issues are best discussed with an appropriate tax professional or estate planning attorney. We do, on request of our clients, work with these professionals in creating plans that fit both the tax situation of our client and their estate planning needs. Also, remember that annuities may or may not be suitable for every person. Only an individual suitability analysis can determine if the use of annuities is proper in your personal retirement and estate planning.

Why Buy Life Insurance?

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If anyone does not take care of his own relatives, especially his immediate family, he has denied the faith and is worse than an unbeliever. 1 Timothy 5:8

We are taught in scripture that we are to provide for our families, especially our immediate family. That obligation does not end in the event of our untimley death. Life insurance provides for the needs of a family in the event of the death of a breadwinner. As believers in Christ, we have sure hope of our salvation and eternal life after death. However, the earthly needs of our families continue after we are gone. Having life insurance does not indicate a lack of faith in God; it represents the final loving act one can do for their family to meet the family’s needs.

We don’t think twice about insuring our homes or our cars. Perhaps this because the finance companies require this insurance to be in place as a condition of the loan.

However, a significant number of people fail to insure their most valuable asset, and this is the ability to earn an income. Just how valuable is this asset?
Consider the following:

EXAMPLE:

40 year old, earning $50,000 per year.

25 years of remaining work life (age 65)

$1.25 million potential loss of income ($50,000/year x 25 years)

IMMEDIATE INCOME TO FAMILY

Unlike holdings that are included in a person’s estate, such as investments, real estate and other items of value, life insurance is not subject to probate and can be paid within a very short period of time provided all policy requirements are met. Also, life insurance policy benefits are NOT normally taxable to individual consumers. (Some business uses of life insurance can result in tax consequences.) This means an immediate source of ready funds to take care of the needs of the policyholder’s family.

HOW MUCH LIFE INSURANCE?

Calculation Method 1

10 times annual income, according to most experts, including Dave Ramsey. Crown Financial Ministries suggests 12 times annual income.

Then invest the proceeds at between 7 to 10 percent return and that should provide the necessary annual income for the family.

Calculation Method 2 (Add the following together)

• Final Expenses, about $10,000
• Mortgage, current principal balance (Allows family to keep or sell home)
• Other Debt, credit cards, cars, etc. (These pass to your estate if you die)
• Education Expense for children (about $7,500 per year currently)
• Add 4 to 6 times annual income

WHO SHOULD BE COVERED

Primary wage earner should be the first person covered if available funds are tight.

A two-income family should cover both wage earners.

Non-working spouse should have about two times the annual salary of primary wage earner for final expenses, additional expenses for childcare, adjustment period, etc.

Children have two reasons to be insured for much smaller amounts: 1) to cover final expenses, and 2) to guarantee insurability later in life. Good children’s plans have good step up provisions for the child to buy more coverage as they grow older and are more independent. Plans are available for $25,000 in term insurance for $5 or less per month, depending on age and gender of the child.

DON’T OVER INSURE OR STRAIN BUDGET

Total cost of insurance for life insurance only should generally not exceed 5 percent of spendable income. Spendable income is gross income less taxes and tithe.

Cancelled insurance due to non-payment is a great waste of money and leaves the family unprotected. Repurchasing insurance again will be based on the attained age of the proposed insured at the time the new policy is written. This can result in a significantly higher premium for the replacement policy later in life.

Now will always be the least expensive time to purchase a good term life insurance policy. Rates are primarily based on age and tobacco status, and rates go up as we get older.

FINALLY . . .

The amount of insurance is based on the need to provide for needs, not to create a wealthy estate for children or spouse, which can lead to slothfulness, greed, animosity, and all the other issues that come with excessive amounts of unearned money.  Just look at the typical lottery winner five to ten years after winning. Most are in worse condition than before they won.