Deferred Annuity Quotes
Before we discuss the ranges in today’s deferred annuity quotes, we should first understand what a deferred annuity is. When annuity contracts came into existence many years ago, they were basic plans where the purchaser deposited a lump sum of money with the insurance company in turn for a guaranteed monthly income for the rest of their lives. This eventually became known as an immediate annuity.
Over time annuity contracts grow in diversity and they eventually started allowing people to make monthly or quarterly payments into an annuity that they would eventually take income from. This became known as a deferred annuity. Over their working years they were able to build up a larger value by making these regular payments. This time is called the accumulation period. After retirement the distribution phase begins. They contract will then pay a set amount for the rest of the annuity owner’s life.
Main Benefits of a Deferred Annuity
The main benefits of the deferred annuity include having the investment experience of the financial institution to help with investing as well as tax-deferral of the investment returns during the accumulation phase. Whether you were investing in the stock market with a variable annuity or just receiving a fixed rate on your money, all the returns are tax-deferred until you start to take distributions.
Tax-deferral can help you build a larger retirement fund to draw on later, because the compounding of interest or gains in the market can grow much faster without deducting taxes. Tax-deferral is the major benefit of a deferred annuity.
Fixed Deferred Annuity Quotes
If you are putting your money into a Deferred Fixed Annuity you will receive a set rate of return for a fixed period of time. Many fixed annuities will give you higher rates of interest for the longer you lock your money in. Currently with interest rates at historic lows, you may be very disappointed with the fixed rates offered.
For a five year annuity you may receive 2.0 % to 2.25% per year. If you purchase a 7 year contract you may be able to find 3%. Remember that you can lose money on a fixed rate annuity if you terminate your contract before the surrender charge period is over. Many insurance companies will offer you .25 or .50 percent higher interest if you invest over $100,000 and sometimes higher with higher amounts. Check with the financial institution about where their break points are.
New Features on Deferred Variable Annuities
When purchasing a variable annuity you may be able to get a minimum guaranteed rate on your income base. This is different from your contract value. If you purchase a variable annuity that has a rider attached that gives up a 5% step-up in your income base each year no matter what happens in the stock market, this step-up is in your income base only.
This means that if the stock market overall has been down since you got into your annuity that the insurance company will take your initial principle amount and add 5% per year to the amount when determining your monthly retirement income during the distribution phase of your annuity.
Here is an example. You invest $100,000 in a variable annuity with a guaranteed income rider at 5%. Suppose that for 10 years the market goes down and your account value at the time you want to start taking regular income is only $70,000. The insurance company would take your original investment of $100,000 and add 5% for 10 years to bring your income base to $150,000. Suppose that the rate of annual income in the distribution phase is also 5%. That means you will start to receive $7,500 per year or $625 per month income. This does not mean though that you can take a lump sum of $150,000. This is just your income base for monthly payments.
Currently you can find some guaranteed income riders for 5% up to as high as 8%. Many of the rates drop during the distribution phase. Just make sure to understand exactly what your contract states before you purchase it. Also keep in mind that these income riders are not free. Many will cost ¾ % of your contract value per year.
Don't Just Shop, Implement a Solid Retirement Strategy
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In conclusion, you are probably aware that interest rates are very low currently and so deferred annuity quotes that you get for fixed income annuities are going to be very low also. You can get higher rates if you are willing to invest for a longer period of time. However, if interest rates go up in the next four or five years you will have to wait before you can take advantage of these rates. Currently you can get a 10 year annuity with Midland National Life with a rate of 3.8% with a minimum investment of $200,000. Their 8 year rate is 3.55% and their 4 year rate is 2.55% with this same minimum.
Ten year rates on from Protective Life are 3.5% with a minimum investment of $100,000. As far as the deferred variable annuity quotes go, you can find around 5% annual income base guarantees. This is just an average, so check around to compare the rates at several different companies. Don’t forget to check how much these rates are going to cost you also.
Purchasing deferred annuities has become a bit more complex than purchasing an annuity that you want to start taking immediate income from. There are many things to consider. You need to decide whether you prefer a fixed annuity of a variable annuity. If you get a variable annuity you need to find out what guarantees you can get. If you choose to get a fixed annuity you need to consider how long you are willing to lock in your interest rates.
You need to give careful consideration to a number of different things before you purchase your deferred annuity because once you buy you will be in it for a good period of time before you can change it.
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