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