Annuities For Dummies

Title Page
Copyright Page
Table of Contents
Introduction
About This Book
Foolish Assumptions
Icons Used in This Book
Beyond the Book
Where to Go from Here
Part 1 Making Sense of Annuities
Chapter 1 The ABCs of Annuities
Getting Acquainted with Annuities
Part investment, part insurance
Deferring taxes
Recognizing the Most Popular Annuities
“Savings account” annuities
Pension-like annuities
Options-based fixed indexed annuities
Registered index-linked annuities
Traditional variable annuities
Deferred income annuities
Age-in-place annuities (also known as reverse mortgages)
Reasons for Exploring Annuities
The Life Cycle of All Annuities
The purchase stage
The accumulation stage
The income or distribution stage
Chapter 2 Taming the Big Retirement Risks
Countering the Main Risks of Retirement
Longevity-related risks
The risk of outliving your savings
The risk of losing a spouse
Health risk
Long-term-care risk
Investment risks
Market risk
Sequence-of-returns risk
Inflation risk
Tax risk
Policy risk
Planning risks
Having no income plan at all
Overspending
Hoarding
Helping out family members
Facing a decline in cognitive ability
Using Annuities to Buffer Retirement Risks
Annuities for longevity risks
Annuities for investment risks
Annuities for planning risks
Chapter 3 Diving into Annuity Documents
Exploring the Annuity Application and Contract
Signing an annuity contract
Designating the key players
The owner
The annuitant
The beneficiaries
The issuer
Other standard elements of annuity contracts
Free-look periods
Death benefits
Surrender periods
Single versus flexible premium
Qualified versus nonqualified
Annuitization options
New or replacement annuity
Distinguishing between Variable, Fixed, and Fixed Indexed Annuity Contracts
Variable annuity contracts
Fixed annuity contracts
Fixed indexed annuity contracts
Ensuring Suitability and “Best Interest”
Chapter 4 Weighing Annuity Pros and Cons
Evaluating Annuity Advantages
Punting income taxes to the future
Contributing as much as you want
Reducing investment risk
Protecting beneficiaries
Assuring income in retirement
Capturing “survivorship credits”
Obtaining peace of mind
Replacing your old paycheck
Confronting Annuity Drawbacks
Duplicating Social Security
Higher expenses than mutual funds
Reduced liquidity
Annuity earnings are taxed as ordinary income
Low transparency, high complexity in some cases
Adverse selection
Comparing Annuities with Their Competition
Deferred fixed annuities versus CDs
Deferred variable annuities versus mutual funds
Income annuities versus systematic withdrawals
Chapter 5 Deciding Whether an Annuity Is Right for You
Identifying Candidates for Annuities
Boomer couples with 401(k) or 403(b) accounts
Women
The middle class and the affluent
Retirees who don’t have a defined benefit pension plan
People with rugged genes
Market bears and other pessimists
Neither the very young nor the extremely old
People who want to turn a tax bite into bite-size pieces
Those seeking less-expensive long-term-care insurance
People without beneficiaries
Part 2 Identifying the Major Annuities
Chapter 6 Earning Interest with Fixed Annuities
Understanding How Fixed Annuities Work
What’s fixed about a fixed annuity?
Protection from two kinds of risks
Examining the Main Types of Fixed Annuities
Single-year guarantee fixed annuities
Multiyear guaranteed annuities
Weighing the Pros and Cons of Fixed Annuities
Buying a Fixed Annuity
Chapter 7 Creating Retirement Paychecks with Income Annuities
Understanding Income Annuities
Customizing Your Income Annuity
Deciding who will receive income
Deciding how long payments will last
Accessing your money after you buy the contract
Deciding whether to add an inflation-protection rider
Deciding whether to add a cash refund or installment refund
Deciding when to buy your annuity
Buying and Paying for an Income Annuity
Deciding how to pay for your annuity
After-tax money
Pretax money
Comparing an income annuity to a variable annuity with a guaranteed lifetime withdrawal benefit
Choosing fixed or variable income payments
Comparing quotes
Catching Up on Single Premium Immediate Annuity Innovations
Medically underwritten income annuities
Easing into retirement with a bridge annuity
Accelerating your income payments
Dividend-paying “mutual” income annuities
Income annuities that let you take all your money out
Medicaid-compliant or restricted annuities
Chapter 8 Gambling on Fixed Indexed Annuities
Defining Fixed Indexed Annuities
Searching for the Right Fixed Indexed Annuity
Step 1: Finding an FIA-savvy agent
Step 2: Finding a strong life insurer
Step 3: Choosing and customizing an FIA
Choosing a term length
Setting a reset interval
Choosing a market index
Volatility-controlled indexes
Choosing a crediting formula
Other choices and decisions
Lifetime income riders
Bonuses
Enhanced performance (“strategy”) fees
Surrender charges and market-value adjustments
Tracking Index Annuity Performance
Weighing the Pros and Cons of Fixed Indexed Annuities
Chapter 9 Aiming Higher with Registered Index-Linked Annuities
Understanding Registered Index-Linked Annuities
Customizing Your Registered Index-Linked Annuity
Choosing terms or segments
Choosing indexes
Choosing buffers and floors
Adding a lifetime income guarantee
Choosing which “cap” to wear
Seeing How RILAs Work
Finding Out Who Buys or Sells Registered Index-Linked Annuities
Regulating RILAs
SEC
FINRA
State insurance commissioners
Considering Recent RILA-like Savings Products
Chapter 10 Tapping Variable Annuities for Tax Breaks and Income
Understanding Variable Annuities
Investment-Only Variable Annuities
Variable Annuities with Income Riders
How best to use a variable annuity with a guaranteed lifetime withdrawal benefit
What to do with old variable annuities with guaranteed lifetime withdrawal benefits
Lifetime income versus annuitization
Weighing the Pros and Cons of Variable Annuities
The pros
The cons
Chapter 11 Aging Gracefully with Deferred Income Annuities and Qualified Longevity Annuity Contracts
Understanding Deferred Income Annuities
Hedging longevity risk with deferred income annuities
Weighing the pros and cons of deferred income annuities
The pros
The cons
Postponing Required Minimum Distributions with a Qualified Longevity Annuity Contract
Shopping for a Deferred Income Annuity or Qualified Longevity Annuity Contract
Chapter 12 Tapping the Liquidity in Your Home
Defining Reverse Mortgages
Releasing Your Home Equity
Changing your mind
Deciding what to do with the money
Abiding by the rules
Determining your loan amount
Accepting your property as collateral
Weighing the Pros and Cons of Reverse Mortgages
Pros
Cons
Setting Up a Standby Line of Credit
Finding an HECM Counselor
Part 3 Shopping in the Annuity Marketplace
Chapter 13 Issuing Annuities: It’s What Life Insurers Do
Measuring a Life Insurer’s Strength
Classifying the Life Insurers
Mutual life insurers
The meaning of “on your side”
Specializing in simple annuities
Stock life insurers
Conflicting interests
Selling variable annuities
Private equity-linked life insurers
Selling fixed indexed and fixed-rate annuities
Distributing through insurance agents
Other types of life insurers
Keeping the Life/Annuity Industry Honest
Chapter 14 Meeting the Annuity Salespeople
Surveying the Annuity Sales Landscape
Meeting the distributors
Meeting the agents and advisers
Insurance agents
Advisers at banks
Brokerage advisers
Financial planners
Asking Smart Questions
Do I need a product or do I need advice?
Who serves people at my level of wealth?
What conflicts of interest do advisers have?
Which hat does my adviser wear today?
Which designations are meaningful?
Am I getting customized advice?
Expecting Service in Your “Best Interest”
The suitability standard
The fiduciary standard
The best interest standard
Chapter 15 Site-Seeing in the Annuity Web World
Shopping for Fixed Annuities Online
ImmediateAnnuities.com
The Annuity Man
Blueprint Income/AARP
Fidelity and Schwab
Income Solutions
Annuity Straight Talk
Working with Robo-Advisers
NewRetirement
IncomeConductor
Income Strategy
Retirement Researcher
Retirement Optimizer
Calculating Your Financial Future
Landing on the Annuity Issuers’ Sites
Chapter 16 Adding Annuities to 401(k)s
Fixing the Flaw in 401(k)s
Telling 401(k) Annuities Apart
Income annuities versus annuities with guaranteed lifetime withdrawal benefits
In-plan versus out-of-plan annuities
Annuities in TDFs or managed accounts
Deferred contracts, immediate contracts, and qualified lifetime annuity contracts
Browsing the 401(k) Annuity Shelf
BlackRock LifePath Paycheck
Prudential Income Flex
Nationwide Lifetime Income Builder
Principal Pension Builder
MetLife Guaranteed Income Plan: Income Now or Income Later
GuidedChoice Retirement Income Planning
TIAA Secure Income Account
State Street Global Advisors IncomeWise
Deciding Whether to Buy an Annuity with 401(k) Savings
Part 4 Getting the Most out of Your Annuity
Chapter 17 Building Safe Retirement Income
Weaving Annuities into an Income Plan
Topping up Social Security with an annuity
Bucketing your retirement savings
Leapfrogging your annuities
Pairing home equity with an annuity
Creating an Income Plan without Single-Premium Immediate Annuities
Using a Nobel Laureate’s method
Turning required minimum distributions from foe to friend
Flexing your deferred annuity muscles
Chapter 18 The Taxing Side of Annuities
Understanding Annuity Tax Rules
Qualified annuities
Purchases of qualified annuities
Withdrawals from qualified annuities
Nonqualified deferred annuities
Purchases of nonqualified annuities
Withdrawals from nonqualified annuities
Special withdrawal cases
Withdrawals taken as guaranteed lifetime withdrawal benefits
Withdrawals from qualified longevity annuity contracts
Withdrawals from contingent deferred annuities
Weighing the Benefits of Tax Deferral
Weighing the Pros and Cons of Nonqualified Annuity Taxation
Remembering Miscellaneous Annuity Tax Issues
Paying state premium taxes
No tax on 1035 exchanges
Taxes and annuity beneficiaries
Chapter 19 Recognizing Annuity Exit Ramps
Knowing Where Your Contract’s Exits Are
Taking free withdrawals during the surrender period
Using nursing-home waivers
Using the period certain of an income annuity
Choosing a lifetime benefit over annuitization
Eluding the federal penalty — legally
Swapping Annuities: 1035 Exchanges
Converting an Annuity to Life Insurance
Chapter 20 Structuring Your Annuity Correctly
Naming Owners and Annuitants
Naming Beneficiaries
Choosing a Death Benefit
Chapter 21 Avoiding Annuity Pitfalls
Watching Out for Common Annuity Missteps
Forgetting about fees
Surrendering to a long surrender period
Mis-structuring your contract
Heading Off Income Annuity Errors
Trying to “time” an income annuity purchase
Ignoring the period-certain and refund options
Getting only one or two quotes
Choosing the Wrong Assumed Interest Rate
Deflecting Deferred Variable Annuity Problems
Tripping over step-up fees
Confusing the account value with the benefit base
Preventing Silly Mistakes
Buying an indexed annuity that you don’t understand
Falling for an annuity postcard come-on
Underestimating your own (or your spouse’s) longevity
Ignoring the impact of inflation
Avoiding annuities entirely
Part 5 The Part of Tens
Chapter 22 Ten Great Books about Annuities
The Annuity Stanifesto, by Stan G. Haithcock
Are You a Stock or a Bond?: Identify Your Own Human Capital for a Secure Financial Future, by Moshe Milevsky
Don’t Go Broke in Retirement: A Simple Plan to Build Lifetime Retirement Income, by Steve Vernon
Income Strategies: How to Create a Tax-Efficient Withdrawal Strategy to Generate Retirement Income, by William Reichenstein
Lifetime Income to Retire with Strength, by Bruno Caron
Retirement Income Redesigned: Master Plans for Distribution, by Harold Evensky and Deena B. Katz
Retirement Planning Guidebook: Navigating the Important Decisions for Retirement Success, by Wade Pfau
Risk Less and Prosper: Your Guide to Safer Investing, by Zvi Bodie and Rachelle Taqqu
Unveiling the Retirement Myth: Advanced Retirement Planning Based on Market History, by Jim Otar
Another Day in Paradise: The Handbook of Retirement Income, by Jeff Dellinger
Chapter 23 Ten Questions to Ask Before You Sign a Contract
How Will This Annuity Reduce My Risks?
What Are My Risk Tolerance and Risk Capacity?
How Much of My Assets Should I Put into an Annuity?
What Are the Strength and Integrity of the Issuer?
What Are the Fees?
What’s My Upside Potential?
How Do I Get My Money Out?
Where Can I Get More Information about This Annuity?
Am I Better Off Exchanging My Annuity for Another One?
What Are the Tax Implications?
Chapter 24 Ten Annuity Checkpoints on the Information Highway
Moshe A. Milevsky
Center for Retirement Research at Boston College
Society of Actuaries (soa.org)
Financial Industry Regulatory Authority
Securities and Exchange Commission
National Association of Insurance Commissioners
National Organization of Life & Health Insurance Guaranty Associations
Alliance for Lifetime Income
Insured Retirement Institute
American Council of Life Insurers
Part 6 Appendixes
Appendix A Glossary
Appendix B State Guaranty Associations
Index
EULA