The Key to Finding Top Deferred Annuities
Deferred Annuities have always had appeal as a long term, retirement planning vehicle. Their popularity reached a peak during the high interest rate and high tax rate environment in the 1980’s. Today, they remain an attractive alternative for investors who seek stability and predictability for the retirement assets. The challenge for these investors is how to sift through hundreds of annuity products to find the top deferred annuity most appropriate for them
All deferred annuities are fundamentally the same. Insurance regulators and the tax codes ensure that all deferred annuities adhere to the same standards and restrictions. In their efforts to offer the most competitive product, annuity providers have layered on innovations and new features that complicate the comparison process. For the investor who is considering a deferred annuity, the key to finding the top deferred annuities is to focus on their core components:
- Credited Interest Rate
- Rate Guarantees
- Withdrawal Provisions
- Financial Integrity
Core Components of Deferred Annuities
At its core, a deferred annuity is a contract between a life insurance company and an individual. The individual is obligated to keep his funds on deposit for the full length of the term prescribed in the contract. In return, the life insurer is obligate to protect his funds while it uses them to generate an investment yield which is credited back to the individual’s funds.
It’s a nice and tight arrangement, however, a contract is only as solid as the integrity of the two parties. The guarantees and obligations of a deferred annuity are backed by the financial strength of the life insurer and its ability to pay future claims. The top deferred annuities are the ones that are provided by the top rated companies – A-rated or better for their financial integrity and claims paying ability.
Credited Interest Rate
Deferred annuities are fixed rate investments that credit the depositor’s account with a rate of return based on the yield generated by the life insurer in it general account. The better its investment experience the better the yield, in most cases. The highest yields are always indicative of a top deferred annuity. In fact, unusually high yields could be reflective of an investment portfolio that contains lower quality investments.
It is important to find a deferred annuity with a competitive rate, however, your financial security is more important. The extra half of a percent yield is not worth the loss of peace-of-mind, if it comes from a life insurer with a questionable financial condition.
Like their taxable counterparts, bank CDs, deferred annuities offer enticing rates to attract deposits. These rates may be offered for a one year to five year term. There are some that offer a 10 year term. At the end of the term, the rates are adjusted based on a predetermined formula and they become variable, reflecting the current interest rate environment.
The devil is always in the details, so it is important to scrutinize the rate guarantee provisions especially the formula for determining rates have the guarantee period. Some deferred annuities include a bailout provision which frees the annuity owner of it obligation to keep the funds on deposit should the credited interest rate fall below a minimum rate.
In a low interest rate environment it may not be advisable to lock in a longer term if interest rates are expected to rise. The top deferred annuities are the ones that offer more flexibility in determining the rate guarantee period and have competitive bailout provisions.
Don't Just Shop, Implement a Solid Retirement Strategy
Purchasing an annuity is a big decision. Online research is a good start, but prudent investors should discuss all their options and risks with an independent financial advisor. Request a free, no-obligation consultation today, along with a report of current rates on brand-name annuities.Speak with an advisor over the phone about annuities for FREE.
Your obligation to the insurer is to keep your funds on deposit for a specified period. In order to dissuade you from withdrawing your funds early, deferred annuities are structured with a withdrawal schedule restricts your withdrawals to 10% of your accumulated values per year.
The schedule is usually set for five to 10 years during which, if a withdrawal exceeds 10% you will be charged a withdrawal fee. The schedule also dictates the fee percentage which starts out high, around 7% to 12%, and then drops a percent in each subsequent year of the schedule until there is no longer a fee.
For most deferred annuity investors, the withdrawal provisions may not be an issue as they enter into it with a long term horizon for retirement savings. Still, things come up that might require access to long term savings, so deferred annuities do provide some liquidity. It is important to remember that, the IRS will penalize you – 10% of the withdrawal on top of the ordinary income taxes owed - for not keeping your obligation.
If the ability to access your funds is a concern for you, the top deferred annuities are those that offer the most liberal withdrawal provisions. Again, deferred annuities with very liberal withdrawal provisions should be weighed against the financial integrity of the annuity provider.
The key to finding the top deferred annuities is to start your search at the top by considering those life insurers that meet the highest standards for financial integrity. From there you can compare these key, core components straight across and side by side to find a deferred annuity that meets your particular needs.
To find the best annuity products request a free, comprehensive quote comparision. Secure your retirement today, Get Started Now.