3:00PM Session
The ABCs of Annuities
Lee Conti, Jr.
CPS Elite Advisors, Director
& FPA NY, President
14th Annual Financial Fitness Workshop
Disclaimer:
CPS Elite Advisors Ins Svcs LLC. provides educational
workshops and presentations for attendees seeking general
advice about risk management concepts. Topics may include
financial planning, insurance and estate planning and
retirement strategies. All workshops are educational in nature
and do not involve the sale of insurance or investment
products. Information presented will not be based on any one
person’s need nor will individualized investment advice be
provided to attendees during educational sessions.
Educational Workshop Objectives
Introduce Different
Types of Annuities
Educate
Illustrate
Review the Good and
the Bad
What is an Annuity?
An alternative to traditional investment vehicles
You
Premiums
Income
Insurance
company
Insurance-based
contract
Option for
lifetime income
Tax-deferred
accumulation
Competitive rate
of return vs. the risk
Types of Annuities
Deferred
Annuity
Immediate
Annuity Fixed, Variable,
Indexed, Longevity
Deferred Annuity
Premiums
Regular income
$100,000 premium $155,800
Age 50
Age 65
$10,470 average annual
income (only $5,470 taxable)
3%
return
Payout over
20 years
How Deferred Annuities Work
This hypothetical example is used for illustrative purposes only. Any guarantees are contingent on the financial strength and claims-paying ability of the issuing company. Actual results will vary.
Tax-Deferred Compounding
Earnings are not taxed until withdrawn
Postponing taxes keeps more of your
money working for you
Immediate Annuity
Premium
Regular income
What is an immediate annuity?
“An immediate annuity is a contract in
which an insurance company makes a
series of income payments at regular
intervals in return for a premium or
premiums you have paid. Annuities are
most often bought for future retirement
income, and can pay an income that
can be guaranteed to last as long as
you live.”
$100,000 premium
Age 65 $6,028 annual income
(only $1,031 taxable)
Payout over
20 years 2.04%
return
How Immediate Annuities Work
This hypothetical example is used for illustrative purposes only. Rates as of 9-
13-2016.Any guarantees are contingent on the financial strength and claims-
paying ability of the issuing company. Actual results will vary.
How Annuities Earn Interest
Fixed returns
Variable returns
Fixed Annuity
Fixed returns
Guaranteed minimum
interest rates
The guarantees of fixed annuity contracts are
contingent on the financial strength and
claims-paying ability of the issuing company.
Current Annuity Rate NY State
$100,000 Deposit 5 year Fixed Rate: 2.25%
10% Free Withdrawal every year: after Year 1
Surrender Schedule on Withdrawals above 10%:
Yr 1 = 7% Yr 2= 6% Yr 3= 5%
Yr 4=4% Yr 5 = 3%
Indexed Annuity
Minimum return rate guarantee
Potential for higher returns linked to market performance
Returns are based on how market indexes perform, but
insured’s funds are never invested into the market. They are
held in the general account of the insurance company.
Returns linked to an Index but the contract has a floor of
zero so all principal, & previous gains are preserved.
The guarantees of indexed annuity contracts are contingent on the
financial strength and claims-paying ability of the issuing company.
Annuities Can Provide
Income for Life
1. ANNUITIES FOR AN INCOME
YOU CAN’T OUTLIVE
2. TAX CONSIDERATIONS
3. TRENDS AND STRATEGIES
4. CASE STUDIES
5. IMPORTANT QUESTIONS
Longevity Insurance
Often purchased around
retirement age (or earlier),
with payouts starting at an
advanced age such as 80 or 85
Costs less than an immediate
annuity, but income payments
are typically much higher than
a regular deferred annuity
Any guarantees are contingent on the financial strength and
claims-paying ability of the issuing company.
Longevity Insurance in a Qualified Retirement Plan
Qualified Longevity Annuity Contract (QLAC)
• Can use lesser of $125,000 or 25% of account
balance to purchase a QLAC
• Annuity’s value excluded from account balance
used to determine RMDs
• Option for continuation of income for lifetime
of beneficiary
• No cash-out provisions
• Income payments are fully taxable
Variable Annuities
Variable annuities are long-term investment vehicles
designed for retirement purposes.
Please consider the investment objectives, risks,
charges, and expenses carefully before investing.
The prospectus, which contains this and other
information about the variable annuity contract and
the underlying investment options, should be read
carefully.
Variable Annuity
Stocks
Bonds
Fixed
Money market
Balanced Investment
subaccounts
offer variable
returns.
1. ANNUITIES FOR AN INCOME
YOU CAN’T OUTLIVE
2. TAX CONSIDERATIONS
3. TRENDS AND STRATEGIES
4. CASE STUDIES
5. IMPORTANT QUESTIONS
The ABCs of Annuities
Taxable (28%)
Tax-deferred fixed annuity
Tax-deferred fixed annuity after taxes
$202,763
30 years
$123,825 $134,392 $153,327
$180,611 $189,857
$242,726
10 years 20 years
$100,000 initial premium 3% rate of return 28% tax rate
Annuities and Taxes
This hypothetical example is used for illustrative purposes only and does not represent any specific investment or annuity. Annuities typically have mortality and expense charges, surrender charges for early withdrawals, and administrative fees. These fees and charges are not reflected in this example and would reduce the performance shown if they were included. Any guarantees are contingent on the claims-paying ability of the issuing company.
Penalties and Surrender Charges
10% federal income tax
penalty on withdrawals
taken prior to age 59½
Annuities are subject to
surrender charges in the
early years of the contract
1. ANNUITIES FOR AN INCOME
YOU CAN’T OUTLIVE
2. TAX CONSIDERATIONS
3. TRENDS AND STRATEGIES
4. CASE STUDIES
5. IMPORTANT QUESTIONS
The ABCs of Annuities
22%
Financial Challenges
Only 22% of
workers are very
confident that
they will have
enough money
for retirement.
Source: 2015 Retirement Confidence Survey,
Employee Benefit Research Institute
Split Annuity
Premiums
Immediate
income
Future
income
1035 Exchange
Can exchange an
old annuity contract
for a newer one
without creating a
taxable event
Payout Options
Single life
Joint and survivor
Specified period
1. ANNUITIES FOR AN INCOME
YOU CAN’T OUTLIVE
2. TAX CONSIDERATIONS
3. TRENDS AND STRATEGIES
4. CASE STUDY
5. IMPORTANT QUESTIONS
The ABCs of Annuities
Case Study
The Millers
65 years old, retired
$400,000 in bank CDs earning 2%
$800,000 in an Investment Portfolio
Pension and SS income greater than living expenses
$8,000 of CD income creates a tax problem, resulting in 85% of Social Security benefit being taxable
Goal: Reduce taxable income to lower taxability of Social Security benefit
SITUATION
This hypothetical example is used for illustrative purposes only. It does not consider the effects of sales charges or other expenses. Actual results will vary. The FDIC currently insures bank CDs for up to $250,000 per depositor, per insured institution. The issuing insurance company guarantees fixed annuities, but these guarantees are contingent on the claims-paying ability of the issuing company.
Case Study
The Millers
Reposition $200,000 from the CDs to a
fixed annuity
– Tax-deferred until funds are withdrawn
– Only a portion of withdrawals would be taxable
– Could lower taxable income reduces taxability
of Social Security benefit
SOLUTION
This hypothetical example is used for illustrative purposes only. It does not consider the effects of sales charges or other expenses. Actual results will vary. The FDIC currently insures bank CDs for up to $250,000 per depositor, per insured institution. The issuing insurance company guarantees fixed annuities, but these guarantees are contingent on the claims-paying ability of the issuing company.
1. ANNUITIES FOR AN INCOME
YOU CAN’T OUTLIVE
2. TAX CONSIDERATIONS
3. TRENDS AND STRATEGIES
4. CASE STUDIES
5. IMPORTANT QUESTIONS
The ABCs of Annuities
Is an Annuity Appropriate for You? (Upsides)
Tax deferral
Flexibility
Competitive rates of return
Steady income
No contribution limits
1 IMPORTANT QUESTIONS
Annuity Costs (Downsides)
Sales charges
Administrative fees
Investment management fee
Mortality and expense charges
How Do You Select an Insurance Company?
Description A.M.
Best
Standard
& Poor’s Moody’s
Fitch
Ratings
SUPERIOR A++ AAA Aaa AAA
Very little risk A+
EXCELLENT A AA+ Aa1 AA
A Slightly higher risk A– AA Aa2
AA– Aa3
GOOD B++ A+ A1 BBB
High claims- B+ A A2
paying ability A– A3
ADEQUATE B BBB+ Baa1 BB
Less protection B– BBB Baa2
against risk BBB– Baa3
BEL0W AVERAGE C++ BB+ Ba1 __
Relatively high C+ BB Ba2
risk factor BB– Ba3
WEAK C B+ B1 B
Very high risk factor C– B B2
B– B3
NONVIABLE D CCC
CC
R
Caa C
D E Ca
F C
4 IMPORTANT QUESTIONS
Selecting an Insurance Company
A.M. Best 908-439-2200 Standard & Poor’s 212-438-2400 Moody’s 212-553-1653 Fitch Ratings 800-893-4824
OBTAINING RATINGS
Tips from the SEC Before buying any variable annuity do
your homework and compare; evaluate the insurance company
Request a prospectus from the insurance company or from your financial professional, and read it carefully.
The annuity contract contains: fees and charges, investment options, death benefits, and annuity payout options.
Compare it to other annuities and other types of investments.
Current 5 YR CD Rates Top 3 APY Rates
2.02%
2.00 % 1.92 %
Annuity vs CD
2.25% vs 2.02%
Do it yourself
Work with your Advisor
Consult with a CFP® or CFP® & Annuity
expert team
Do nothing – annuities are not prudent for
everyone
Where Do You Go from Here?
Q & A (10 min) contact info Lee Conti Jr. (914)-752-4469