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Life Annuity Connecticut

In this post, we will explain some things about; Life Annuity Connecticut.

The term “Life Annuity” is rather generic and can have multiple meanings but it is almost always used when describing lifetime income from an annuity product.   This post provides detail on the most common uses of the term and provide detail on how a lifetime income annuity works.

First meaning of the term “Life Annuity:

Annuity with a lifetime income rider: There are a number of companies that offer income riders that can be added to their annuity products.  The income rider is a way to guarantee a lifetime income stream off of you investment for life.  The riders usually provide for a substantial bonus on your money up front (approx. 2% to 10% depending on product)  and will increase every year at a set compound interest rate (Going rate is 4% to 8% per year).  Money in the product is guaranteed to increase at the specified rate for up to a specific number of years.  Many companies cap the growth and 10, 15 or 20 years.

The point of the income rider is that it allows the investor to calculate exactly how much income they will be able to draw in future years.

Once they decide to turn income on, it will pay out for the rest of their lives or if they have a spouse, it will pay out until both pass away.  Income riders have become hugely popular in the last 10 years due to the perceived unpredictability of the stock market.   Income riders can usually be added to fixed, fixed indexed or Variable annuities.   The purchaser should know that the income rider guarantees the income only.  It does not guarantee growth of the actual lump sum investment.

The second meaning of the term “Life Annuity”:

is usually associated with a Deferred Annuity or sometimes called “Longevity Insurance”.  This is also an annuity but it functions in a different manner.  The Deferred Annuity takes a lump sum payment and pays out a guaranteed future in come at a predetermined future date.   The insured will usually not have access to the money prior to the payout starting which makes the Deferred Annuity less flexible than an income rider product.

The bottom line with lifetime income products:

Find the companies that will pay out the most guaranteed future income.  It is very easy to compare these products if you compare them fairly.  For example.  A 55 year old female wants to use $250,000 to create future lifetime income when she turns 65.  She needs to find the company that will pay out the most to her per month in 10 years.  Companies will try to say add “bells and whistles” to products to keep people from making this most simple of comparisons but if income is true need, there is no reason to look at anything else.

How Crowe and Associates can help you pick the correct annuity:

Crowe and Associates is based in Brookfield, Connecticut. The agency is independent and able to work with any annuity company as a result. We are A rated with the BBB and help clients find the right annuity type and company to meet their needs. Once we determine the type of annuity needed, we will then shop to see which company is providing the best rates and terms. Feel free to request a quote through this site or call our office at 203-567-6235. You will be contact by someone from Crowe and Associates only. We DO NOT sell your information to other brokers or companies.

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Variable Annuity Connecticut

Here is some information about Variable Annuity Connecticut:

A variable annuity (VA’s) is an insurance contract that relies on investment accounts (Mutual Funds) to determine performance of the money in the annuity. Depending on the product, there can be a number of different mutual funds within the annuity for the investor to choose from. There are usually more than enough accounts to choose from in order to have a diversified investment allocation. The VA’s have a number of riders that can also be added. I have provided a quick summary on VA products and some of the riders that may be added to them. Read more

A number of companies offer a variety of fixed annuities in Connecticut which often offer higher interest payouts than a standard bank CD.  The term “fixed annuity” is very generic so I will describe the different types in this post.  The type of fixed annuity that will work best for you depends entirely on your situation and what you are trying to accomplish.  Lets move on to a description of each type.

Single Premium Immediate Annuity (SPIA)- SPIA’s are the oldest type of annuity and the way they work is very simple.  You give the company a lump sum of money and they pay an income stream to you for a set amount of time. (5 years, 10 years, lifetime, etc…)  The lifetime option can not be outlived but you are also giving up the lump sum of money in order to have the income stream.  There are now Return of Premium SPIA’s which pay a bit lower income but insure that the any remaining principal will be paid out in the event of premature death.

Fixed or MYGA Annuity-  This is the traditional fixed annuity.  The MYGA stands for “Multiple Year Guaranteed Annuity”.  This product is also refereed to as a “CD Like Annuity” at times.   The plan offers a fixed interest rate at determined number of years.  The rate can not change during the fixed years listed.   So if you had a 5 year MYGA guaranteed at 3.4%, it means you will get 3.4% for 5 years.   The rate is compounded every year.   At the end of the 5 years, you are then free to take your money and go.   If you take the money out prior to the 5 year term, you will pay surrender penalties on the product.  (You are allowed to take 10% a year without penalty during the 5 year term.

Overall- MYGA’s really are a better way to a better fixed interest rate than that being offered by a bank CD.   The consumer needs to be careful of a few things however.  The first is to find out how long the surrender charges last on the product.  You should match them up with the fixed interest rate period.   If the interest rate on the fixed annuity is guaranteed for 7 years, make sure that the product has a 7 year surrender charge.  You would not want to have a surrender charge that is longer than the rate guarantee.  The second important point is to make sure that the rate you see is not just a first year bonus rate.  If you see something like “5 year annuity with 4.5% first year rate”  you need to inquire as this is probably really a 3.5% or 2.5% product with a bonus on the first year only.

Fixed or MYGA Annuity with Income rider-  This is the same product listed above but some companies will allow you to add an income rider to the policy.  The rider is a way that income can be elected on a lifetime basis in any future year. This allows the client to know exactly how much income can be taken for life.  Income riders can be very useful but you need to know all the details.  You will also want to know if the rider carries an annual fee.

Fixed Indexed Annuity- (FIA) Unlike the MYGA, the Fixed Indexed Annuity uses market based crediting methods to determine interest.   The crediting accounts follow the S & P and various other market indexes to determine how much interest will be credited.   Since it is a fixed product there can not be a negative year.  The worse the product can credit is 0% gain in a down market.  To make up for this protection, the insurance company will cap the upside gain allowed.  There are a huge number of fixed indexed products that credit interest in a number of different ways.  Income riders, accelerated nursing home riders and death benefit riders can be added to a number of the products offered.  It is not uncommon for a bonus to be credited to the initial investment.  They range from 2% to 12% depending on the product.

Overall- Fixed Indexed Annuities have many uses but it is important to pick the right FIA for its intended purpose.    There are also products that have very long surrender periods so it is important to know how long you may be locking your money up for.

How Crowe and Associates can help you pick the correct annuity:  Crowe and Associates is based in Brookfield, Connecticut.  The agency is independent and able to work with any annuity company as a result.  We are A rated with the BBB and help clients find the right annuity type and company to meet their needs.  Once we determine the type of annuity needed, we will then shop to see which company is providing the best rates and terms.  Feel free to request a quote through this site or call our office at 203-567-6235.  You will be contact by someone from Crowe and Associates only.  We DO NOT sell your information to other brokers or companies.

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Companies have been coming to the market with a new type of insurance plan called “Longevity Insurance”.   The plans are being offered by NY Life, Symetra, The Hartford and Met life.   There will surely be a number more coming out with plans over the next 6 to 12 months.

The idea behind longevity insurance is that a person can put away money for a number of years (most plans are for people in their 50’s) with a guarantee that they can have lifetime income at a future date.  Most of the plans currently available require that you wait at least 10 years to start income.  Some of the plans will allow the income stream to pay out for a single persons lifetime while others offer a joint spouse option at a reduced payout.

This concept is not new and has actually been used by insurance companies for over 100 years.  For the past 10 years, companies have been offering annuities with income riders that allow people to do the same thing.  Put money away for a number of years with a guaranteed lifetime income payout at a future date.   There are some variables to consider when comparing longevity insurance to a regular annuity with an income rider but there are two things that are the most important:  How much will they pay at a future date and do they allow you to keep access to your investment.

Access to investment:   Most income riders will pay out lifetime income without annuitizing the contract.  In other words, they do not take the lump sum away once they start paying income.  On the other hand, most of the Longevity plans annuitize the contract which takes the lump sum from the investor in return for income payments for life.

Payout:  Here is the most important point.  How much will the product payout as lifetime income at any future date.  The Longevity products I reviewed payout out substantially less than the most competitive income riders.  For example:  If a 55 year old male put $100,000 in the Symetra longevity plan at age 55 they could get an income stream of $6,050 a year for life at age 60 or $8,483 a year for life at age 65.  Compare that to the Great American income rider using the same person and same investment amount of $100,000.  They would pay out $7,500 a year at age 60 and $11,000 a year at age 65.  Substantially higher payouts.

At the end of the day, Longevity insurance is just a new way for companies to try to crack into the annuity market.  The product looks and feel like an annuity with an income rider with a low payout.   At this point, there is nothing unique or advantageous about “Longevity Insurance”.

Choosing an Annuity

Choosing an annuity is made out to be the most difficult decision in the world but it really doesn’t have to be.  There is a logical progression to be made when making a choice.   In this post I will go over the steps that need to be taken to make the right choice.

Before getting into the steps,

I would like to point out a few key points that will help you along the way.  The first is that there is not a “best” annuity for every thing or a company that has the “best” annuity for all situations.   Insurance companies jockey back and forth to offer the best product for a certain situation. They do not try to have the best product for every situation.  Also, they do not  keep their product competitive for long.  Usually an insurance company will offer a very competitive or the most competitive product for only 6 to 18 months and then they will lower rates.

The other important point is not to simply go by a company name.

Insurance companies lean on their reputation heavily to get a prospects business.  They will use the name as a way to offer a less than competative product to the public and it works.  People will blindly buy an insurance companies product simply because of the company offering it.  This is a sure fire way to make sure you are not getting the best in class product.

The first and most important step when picking an annuity is to determine what you want it for.

This sounds simple and silly but it is the most important part of the entire process and the most common mistake people make.  I cant count the number of times I have talked to someone who is about to purchase an annuity because of some incredible feature it has.  The problem is that the feature usually will do little or nothing to help them with what they need the annuity for.  You need to figure out what you are trying to accomplish.  There are a limited number of things people want to accomplish with money and a limited number of areas where an annuity will work.  Here are the most common ones.  It is critical to determine which you fit into.

• Draw a future income stream at some future date
• Immediate income draw
• Grow a lump sum of money to leave to heirs
• You want to grow a lump sum of money to use for a known future expense or purpose

Once you determine what you are trying to accomplish, it becomes much easier to find the best product to accomplish the goal.

For example, if you want future income, the best way currently is to use an annuity with an income rider or if you need immediate income your best bet is to use an annuity for that purpose called a SPIA.  If you want to leave the most money to heirs possible, you would use an annuity with a high death benefit roll up feature and so on…..

By determining your need, you can identify the right type of annuity to use to get the job done.  Once you determine the type of product needed, you then need to find out which company has the best “highest paying or earning” product of that type.  For example, if you need an immediate income, you would use a SPIA.  The highest paying SPIA’s are currently offered by Symetra, Great American, Guggenheim and NY Life.   This will change over time but they are at the top currently because they will pay out the most money immediately.  If you need income 5 years from now, you would use an idexed annuity with an income rider and the highest paying company would be Security Benefit SIA Annuity.  Again, how long will they be able to say they pay the most?  No one knows for sure but right now they pay the most.

I had a person call my office and he was told Met Life would work the best to generate income of $320,000 7 years from now.  (he was 58 years old)

The representative he spoke with said Met was the best.  At the the time, Forethought was paying out the most income of any carrier for a person that age.  I ran the guaranteed income payout for Forethought in 7 years vs. the Met life payout and the forethought income beat the Met Life Income by $5,000 a year for the rest of his life and his spouses life.  There is a 70% chance either he or his wife will live to at least age 90 based on current life expectancy.  At a difference of $5,000 a year, this would add up to a $125,000 mistake had they gone with the lower paying product.  (25 years multiplied by $5,000)

It can be a chore  choosing an Annuity and finding the highest paying company for a specific product type.

To accomplish this, make sure you work with an independent agency that holds all contracts.  I spend a great deal of time maintaining active appointments with every company offering any type of competitive product for this exact reason.  This way I am able to ensure I am showing people the best option for their specific situation.    Feel free to call or email me if you have questions or need advice.

CD rates are currently at an all time low.   The average 5 year CD rate in Connecticut is 1.08%.    (To see local rates, Bankrate.com is a good site to use  CLICK FOR BANK RATE SITE )  Locking money up for 5 years at a rate below 2% is almost a guarantee that you will not keep up with inflation which is averaging over 3% per year.

Clients that like the idea of using CD and feel safe being backed by FDIC insurance, should consider using market linked CD’s.  Market CD’s work much like a normal CD.  They have a set term such as 3, 5 or 7 years and they are FDIC backed.  The difference is in how they credit interest.   The Market link CD will credit anywhere from 1% to 8% depending on market conditions.  In a poor performing market, the CD will never yield less than 1% but in a stronger performing market, the investor can make as much as 8%.

The CD uses a simple formula to determine annual interest.  They use a grouping of 8 stocks.  Any stock that ends the year the same or at any type of increase credits 1% to the account.  If 5 stocks are flat or up to any extent, the investor will get a 5% interest credited.  If all 8 are flat or up, they will get 8%.  Conversely, if all the stocks are down they will only be credited the base 1% for the year.

At the end of the term, the purchaser can take their money without any penalty.  This is a good option for those that are adverse to risk.  Using market linked CD’s will at least give them a chance to out pace inflation vs. a fixed CD at 1.5% which is essentially guaranteeing an annual loss vs. inflation.

There are more people than ever looking to use a lump sum of money to create a guaranteed future income stream.  Fixed Indexed annuites are usually the most predictible way to do this and they also offer the highest future guaranteed life payouts.

As a result, there are a number of companies offering these types of products and there are even more people selling them.  This includes brokers, insurance agents, CPA’s and CFP’s.  The fact that they put their clients in anything other than the Securit Benefit Secure Income Annuity is disturbing.  Why do I say that?  The reason is that the Security Benefit product has the highest guaranteed payout.   Simply put, they pay a higher income payment than any other company. There is not a trick to the comparison. Its very simple, if you give a company an amount of money, how much will they pay you as an income stream at a future date?  Security Benefit always wins.

If a client is using a different company to create future income, they are not getting the best payout available. Most often this is because the client or the advisor they use are not familiar with Security Benefit. Other times, it relates to the fact that the advisor is not contracted to sell the product.

A Security Benefit illustration is attached. Security Benefit SIA example 100K 59 yr old This is an illustration for a 59 year old male, investing $100,000 and turing on income at age 65. The guaranteed  payout is $8,914  per year for life.  Challenge your broker, financial planner or insurance agent to find a higher payout. I promise you they will not fine one.

* Be aware that Security Benefit has two similarly named products. The Secure Income Annuity has the highest payout.   The Total Value Annuity does not pay out as well but is very unique in its own right but for different reasons.   For more information on the Total Value Annuity click here.

Call Edward Crowe with questions or concerns at 203-796-5403 or by email at Edward@Croweandassociates.com

Life Income annuities have been around for a long time.  The concept is straight forward.   You hand over a lump sum of money to the insurance company and they show you how much they will pay as income for the rest of your life.  There are a number of payout options such as a “Straight life payout” (They pay the money until you die), “Life pay with return of premium” (They pay for life and will pay any unused portion to a beneficiary if you die too soon) and a number of other options as well.

Life pay annuities are valuable when used in the right situation.  They can provide guaranteed income and are not subject to market fluctuation.  In other words, you can rely on the payout no matter what. Wikipedia has a very good article on life pay annuities that is worth reading (click her for Wikipedia article)  The only real drawback to the life income annuity is that you are giving up control of the lump sum asset.  Other lump sums should be maintained in the event it is needed.

In many cases, clients can obtain a better payout by using an indexed annuity with an income rider.  This approach always works better when someone is willing to wait a few years before starting income.  Using an income rider will allow you to know exactly how much income you can have at a future date such as 2, 5, 10 even 20 years down the road.   We always use the company that has the highest payout at the time and currently Security Benefit is the one paying the most.  They win in almost all payout scenarios.  Click Here for Security Benefit Info   This option also allows the client to maintain access to the lump sum investment which can have advantages over the traditional life annuity.

If a client is looking for immediate income, the traditional life annuity will often have the highest payout.  Given that insurance companies are constantly competing with each other to have the highest payout, it is prudent to check the market to make sure you are getting the highest payout possible.

Call (203-796-5403) or email Edward@Croweandassociates.com if you have additional questions or would like to obtain  information or quotes.

Security Benefit is offering a special product that offers unlimited gains without risk to principal.  All fixed indexed annuities offer the ability to grow assets without risk to principal but they all have limits on upside potential.  Some cap the growth potential on an annual basis while others only pass a percentage of the growth to the client.  The Security Benefit Total Value Plan changes all of this.

The total Value offers income riders and death benefit riders and even throws in an 8% bonus. A number of products offer the same benefits however.  What makes the Total Value unique is that the accumulation account uses the TVI index and provides 100% of the gain on a 5 year point to point strategy.  In other words, you put money in on day 1 you get 100% of any gain in the index 100% vested at the end of year 5.

The TVI index is constructed of 24 highly liquid futures contracts across physical commodities , global currencies, Energy, Grains, Precious Metals, Industry Metals, Softs (Cocoa, Coffee, Cotton, Sugar) and live stock.  Principal on this contract is 100% guaranteed which allows the contract holder to be more aggressive with the TVI account without worrying about losing a nest egg.  For more info on the TVI  click here

Historic results show the worst 10 year average annual return has been 5.08% per year (This does not include the 8% bonus) while the best 10 year average return has been 8.99% (This does not include the 8% bonus)

The product has been available for about 4 weeks and has taken on an unprecedented amount of assets already.  The downside is that Security Benefit has a limit of assets it wants to take on and will close this product to new money once the hit the threshold.

TVI explained doc

TVI performance

If you want more information, please email Edward Crowe at Edward@Croweandassociates.com or call 203-796-5403

Here are some common mistakes people make regarding Social Security.  If you have more questions or concerns, please call or email Edward Crowe at 203-796-5403 or email at Edward@Croweandassociates.com

1. Waiting past age 66 to file

Even if you don’t intend to collect benefits until after age 66, don’t forget to file by the time you reach full retirement age. If you don’t wish to collect at that time, simply indicate that you want to suspend your benefits so they can keep growing.

Failing to file by 66 negates the possibility of earning a full lump-sum repayment if you later decide you’d rather have collected those suspended benefits (such as might occur if you suffer health problems in your late 60s). In that scenario, the lump-sum option will award you all you would have collected to that point at once, but this works only if you filed on time.

In addition, using a “file-and-suspend” strategy can also allow your spouse to begin collecting benefits while you continue working.

2. Waiting past age 70 to collect

There is a financial incentive for seniors to delay collecting Social Security past their full retirement age. For each year they wait, their benefits get a bump of between 5.5% and 8%. However, there are no additional benefits for waiting past age 70. At that point, any further delay in collecting simply means money lost.

3. Neglecting spousal benefits

Social Security offers several options for spousal benefits, so don’t miss this opportunity to bring in some extra cash if you or your spouse is eligible. For example, if you are collecting benefits and your spouse is at least 62 and isn’t collecting benefits, your spouse is eligible for a separate spousal benefit. The beauty of this arrangement is that it doesn’t diminish your benefits in any way.

4. Forgetting former spouses

After a divorce, the last thing you may want to remember is your former partner. However, if you were married to someone for 10 years and have been divorced for at least two, you are eligible to collect a spousal benefit from the relationship, provided both of you are eligible to collect benefits. However, this only works if you are unmarried when you file to collect.

In addition, when that former spouse dies, you can begin to collect his or her full level of benefits — just as you would with a current spouse.

5. Assuming you and your spouse should file at the same time

Filing for Social Security doesn’t have to be an all-or-nothing proposition for couples. In fact, using a so-called hybrid strategy can be an effective way to maximize Social Security benefits that the two of you receive. One spouse can file for benefits at a younger age while the other waits until later to maximize benefits.

6. Waiting too long to collect if you already have health problems

filing at age 62 is a common mistake, but it can be a smart move for those with serious or chronic health conditions. If you don’t reasonably expect to live into your 70s, filing early may increase your overall payout.

7. Dying without warning

Remember the bit about later applying for a lump-sum repayment if you deferred your benefits? It doesn’t work if you’re dead. That means your family will be left out in the cold on those deferred earnings if you don’t collect them before you die. While this sin is harder to avoid than the others, making sure to file by at least age 66 can help make you more prepared.