retirement plan outline

Annuity payout options

·        Lump sum

·        Series of payments for life

·        Period of time in contract

Annuitized

·        payments are based on value of annuity unit

Annuity units

·        insurance company converts accumulation units into annuity units

Assumed interest rate

·        rate at which annuity will grow after insurance company estimates expenses to maintain variable annuity

·        account value=AIR, value-same

·        account value increase > AIR, next payment will > last value

·        account value decrease <AIR< next payment < last value

Annuity period

·        assets stay in separate account-investment risk present

·        or assets transfer into fixed annuity account

Lifetime of payments

·        annuity units paid during lifetime

·        value of units change

·        payments by insurance company may be different

·        change by performance of separate account vs assumed interest rate

fixed number of payments

·        number of units remain same

·        amount of payments depends on performance of separate account vs assumed interest rate

life annuity

·        payments for life

·        no concern for beneficiary

·        upon death payments stop

·        gamble-hope to live long enough to receive all payments

·        if die before pay out period, beneficiary receives

life annuity period certain

·        set period of time payments if longer

·        OR until death of annuitant if longer

·        Can choose 5,10, or 20 years to receive payments

·        Die before period ends, beneficiary gets remaining payments

·        If buyer lives longer than period, gets payments till death

Joint and last survivor life annuity

·        Payments until annuitant dies

·        Transfer payments to survivor until survivor dies

·        Popular for husband and wife

·        Payments made until husband and wife die

Specified amount annuity

·        Payments for a specified amount until value of annuity drained/reduced

How payout is calculated

·        Insurance co. converts accumulation units into total

·        Annuity units, based on age,sex,type of payout-co. decides beginning value

·        Insurance co. decides amount of units buyer gets per period based on payout option

Variable annuity guarantees

·        Expenses won’t be greater than x amount

·        Mortality guarantee, payment until buyer dies

·        No market guarantees

·        Buyer gets fixed # of units every mo, value of units changes based on account

The annuity units that are paid out during the annuity period are:

·        Fixed number of units with variable values

·        Same # of units each pay period

·        Unit amount changes

 

 

 

 

retirement plan outline

Annuity

·        Stream of payments

·        $ set aside for retirement

Fixed annuity

·        guaranteed interest rate in contract by insurance companies

·        pay interest when customer withdraws

·        pay out amount decided at beginning

·        annuity contract, between investor and insurance company

·        annuity period, when payments are paid to investor

·        NOT TESTED

Variable annuity

·        grows  by investment performance

·        NOT guaranteed by insurance company

·        More risky than fixed annuity

·        Securities

·        Agents need insurance license in customer state

·        Pay out based on performance

·        Investor can select investments

·        Separate account, where investments are held, managed by investment managers

·        Separate account NOT guaranteed

·        Need prospectus-is a security + not traded in secondary market

·        Similar to mutual funds

Fixed and variable

·        Insurance company holds capital gains, interest, dividends until holder withdraws

·        Annuitant, annuity holder

Which of the following is responsible for issuing a variable annuity policy?

·        An insurance company

·        Insurance company issue a)variable annuity

·        Insurance company issue b)fixed annuity

·        Only RR can sell variable annuity

Variable annuity suitability

·        Customer must need retirement product

·        Customer must have long term plan for $ not to be liquid-ok with not having access to $ for many years

·        Accumulation period: pay-in, buying, growth period a)accumulate tax deferred in pay-in period b)taxed as ordinary income during pay-out period c)pay out based on performance during pay-in period

·        Annuity period: pay-out period

What are the two periods of a variable annuity?

·        Accumulation period-pay in period

·        Annuity period-pay out period

 

Accumulation period

·        Customer buys annuity

Types of payment

·        Single payment, immediate payout contract-retirees take lump sum from unhappy-existing retirement plan and buy annuity. Pay large sum ASAP and can withdraw payments ASAP

·        Single payment, deferred payout contract-people who work in new jobs different from previous jobs, want to defer taxes on investment gains, don’t need investment income now, pay large sum ASAP, will withdraw later

·        Periodic payment, deferred payout contract-most popular, buy annuity over long time period, withdraw at retirement, accumulation period=entire time they are buying + time it is growing until annuity period

Separate account

·        Money is invested in separate account during accumulation period

·        Either in mutual funds

·        Or in a managed account by an investment advisor

·        Unit investment trust-$ invested in mutual funds

·        Open end management company, investment advisors manage

General account

·        Managed by insurance company