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Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and...

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3:00PM Session The ABCs of Annuities Lee Conti, Jr. CPS Elite Advisors, Director & FPA NY, President 14 th Annual Financial Fitness Workshop
Transcript
Page 1: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

3:00PM Session

The ABCs of Annuities

Lee Conti, Jr.

CPS Elite Advisors, Director

& FPA NY, President

14th Annual Financial Fitness Workshop

Page 2: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

Disclaimer:

CPS Elite Advisors Ins Svcs LLC. provides educational

workshops and presentations for attendees seeking general

advice about risk management concepts. Topics may include

financial planning, insurance and estate planning and

retirement strategies. All workshops are educational in nature

and do not involve the sale of insurance or investment

products. Information presented will not be based on any one

person’s need nor will individualized investment advice be

provided to attendees during educational sessions.

Page 3: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

Educational Workshop Objectives

Introduce Different

Types of Annuities

Educate

Illustrate

Review the Good and

the Bad

Page 4: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

What is an Annuity?

An alternative to traditional investment vehicles

You

Premiums

Income

Insurance

company

Insurance-based

contract

Option for

lifetime income

Tax-deferred

accumulation

Competitive rate

of return vs. the risk

Page 5: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

Types of Annuities

Deferred

Annuity

Immediate

Annuity Fixed, Variable,

Indexed, Longevity

Page 6: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

Deferred Annuity

Premiums

Regular income

Page 7: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

$100,000 premium $155,800

Age 50

Age 65

$10,470 average annual

income (only $5,470 taxable)

3%

return

Payout over

20 years

How Deferred Annuities Work

This hypothetical example is used for illustrative purposes only. Any guarantees are contingent on the financial strength and claims-paying ability of the issuing company. Actual results will vary.

Page 8: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

Tax-Deferred Compounding

Earnings are not taxed until withdrawn

Postponing taxes keeps more of your

money working for you

Page 9: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

Immediate Annuity

Premium

Regular income

Page 10: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

What is an immediate annuity?

“An immediate annuity is a contract in

which an insurance company makes a

series of income payments at regular

intervals in return for a premium or

premiums you have paid. Annuities are

most often bought for future retirement

income, and can pay an income that

can be guaranteed to last as long as

you live.”

Page 11: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

$100,000 premium

Age 65 $6,028 annual income

(only $1,031 taxable)

Payout over

20 years 2.04%

return

How Immediate Annuities Work

This hypothetical example is used for illustrative purposes only. Rates as of 9-

13-2016.Any guarantees are contingent on the financial strength and claims-

paying ability of the issuing company. Actual results will vary.

Page 12: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

How Annuities Earn Interest

Fixed returns

Variable returns

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Fixed Annuity

Fixed returns

Guaranteed minimum

interest rates

The guarantees of fixed annuity contracts are

contingent on the financial strength and

claims-paying ability of the issuing company.

Page 14: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

Current Annuity Rate NY State

$100,000 Deposit 5 year Fixed Rate: 2.25%

10% Free Withdrawal every year: after Year 1

Surrender Schedule on Withdrawals above 10%:

Yr 1 = 7% Yr 2= 6% Yr 3= 5%

Yr 4=4% Yr 5 = 3%

Page 15: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

Indexed Annuity

Minimum return rate guarantee

Potential for higher returns linked to market performance

Returns are based on how market indexes perform, but

insured’s funds are never invested into the market. They are

held in the general account of the insurance company.

Returns linked to an Index but the contract has a floor of

zero so all principal, & previous gains are preserved.

The guarantees of indexed annuity contracts are contingent on the

financial strength and claims-paying ability of the issuing company.

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Annuities Can Provide

Income for Life

1. ANNUITIES FOR AN INCOME

YOU CAN’T OUTLIVE

2. TAX CONSIDERATIONS

3. TRENDS AND STRATEGIES

4. CASE STUDIES

5. IMPORTANT QUESTIONS

Page 17: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

Longevity Insurance

Often purchased around

retirement age (or earlier),

with payouts starting at an

advanced age such as 80 or 85

Costs less than an immediate

annuity, but income payments

are typically much higher than

a regular deferred annuity

Any guarantees are contingent on the financial strength and

claims-paying ability of the issuing company.

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Longevity Insurance in a Qualified Retirement Plan

Qualified Longevity Annuity Contract (QLAC)

• Can use lesser of $125,000 or 25% of account

balance to purchase a QLAC

• Annuity’s value excluded from account balance

used to determine RMDs

• Option for continuation of income for lifetime

of beneficiary

• No cash-out provisions

• Income payments are fully taxable

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Variable Annuities

Variable annuities are long-term investment vehicles

designed for retirement purposes.

Please consider the investment objectives, risks,

charges, and expenses carefully before investing.

The prospectus, which contains this and other

information about the variable annuity contract and

the underlying investment options, should be read

carefully.

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Variable Annuity

Stocks

Bonds

Fixed

Money market

Balanced Investment

subaccounts

offer variable

returns.

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1. ANNUITIES FOR AN INCOME

YOU CAN’T OUTLIVE

2. TAX CONSIDERATIONS

3. TRENDS AND STRATEGIES

4. CASE STUDIES

5. IMPORTANT QUESTIONS

The ABCs of Annuities

Page 22: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

Taxable (28%)

Tax-deferred fixed annuity

Tax-deferred fixed annuity after taxes

$202,763

30 years

$123,825 $134,392 $153,327

$180,611 $189,857

$242,726

10 years 20 years

$100,000 initial premium 3% rate of return 28% tax rate

Annuities and Taxes

This hypothetical example is used for illustrative purposes only and does not represent any specific investment or annuity. Annuities typically have mortality and expense charges, surrender charges for early withdrawals, and administrative fees. These fees and charges are not reflected in this example and would reduce the performance shown if they were included. Any guarantees are contingent on the claims-paying ability of the issuing company.

Page 23: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

Penalties and Surrender Charges

10% federal income tax

penalty on withdrawals

taken prior to age 59½

Annuities are subject to

surrender charges in the

early years of the contract

Page 24: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

1. ANNUITIES FOR AN INCOME

YOU CAN’T OUTLIVE

2. TAX CONSIDERATIONS

3. TRENDS AND STRATEGIES

4. CASE STUDIES

5. IMPORTANT QUESTIONS

The ABCs of Annuities

Page 25: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

22%

Financial Challenges

Only 22% of

workers are very

confident that

they will have

enough money

for retirement.

Source: 2015 Retirement Confidence Survey,

Employee Benefit Research Institute

Page 26: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

Split Annuity

Premiums

Immediate

income

Future

income

Page 27: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

1035 Exchange

Can exchange an

old annuity contract

for a newer one

without creating a

taxable event

Page 28: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

Payout Options

Single life

Joint and survivor

Specified period

Page 29: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

1. ANNUITIES FOR AN INCOME

YOU CAN’T OUTLIVE

2. TAX CONSIDERATIONS

3. TRENDS AND STRATEGIES

4. CASE STUDY

5. IMPORTANT QUESTIONS

The ABCs of Annuities

Page 30: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

Case Study

The Millers

65 years old, retired

$400,000 in bank CDs earning 2%

$800,000 in an Investment Portfolio

Pension and SS income greater than living expenses

$8,000 of CD income creates a tax problem, resulting in 85% of Social Security benefit being taxable

Goal: Reduce taxable income to lower taxability of Social Security benefit

SITUATION

This hypothetical example is used for illustrative purposes only. It does not consider the effects of sales charges or other expenses. Actual results will vary. The FDIC currently insures bank CDs for up to $250,000 per depositor, per insured institution. The issuing insurance company guarantees fixed annuities, but these guarantees are contingent on the claims-paying ability of the issuing company.

Page 31: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

Case Study

The Millers

Reposition $200,000 from the CDs to a

fixed annuity

– Tax-deferred until funds are withdrawn

– Only a portion of withdrawals would be taxable

– Could lower taxable income reduces taxability

of Social Security benefit

SOLUTION

This hypothetical example is used for illustrative purposes only. It does not consider the effects of sales charges or other expenses. Actual results will vary. The FDIC currently insures bank CDs for up to $250,000 per depositor, per insured institution. The issuing insurance company guarantees fixed annuities, but these guarantees are contingent on the claims-paying ability of the issuing company.

Page 32: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

1. ANNUITIES FOR AN INCOME

YOU CAN’T OUTLIVE

2. TAX CONSIDERATIONS

3. TRENDS AND STRATEGIES

4. CASE STUDIES

5. IMPORTANT QUESTIONS

The ABCs of Annuities

Page 33: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

Is an Annuity Appropriate for You? (Upsides)

Tax deferral

Flexibility

Competitive rates of return

Steady income

No contribution limits

1 IMPORTANT QUESTIONS

Page 34: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

Annuity Costs (Downsides)

Sales charges

Administrative fees

Investment management fee

Mortality and expense charges

Page 35: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

How Do You Select an Insurance Company?

Description A.M.

Best

Standard

& Poor’s Moody’s

Fitch

Ratings

SUPERIOR A++ AAA Aaa AAA

Very little risk A+

EXCELLENT A AA+ Aa1 AA

A Slightly higher risk A– AA Aa2

AA– Aa3

GOOD B++ A+ A1 BBB

High claims- B+ A A2

paying ability A– A3

ADEQUATE B BBB+ Baa1 BB

Less protection B– BBB Baa2

against risk BBB– Baa3

BEL0W AVERAGE C++ BB+ Ba1 __

Relatively high C+ BB Ba2

risk factor BB– Ba3

WEAK C B+ B1 B

Very high risk factor C– B B2

B– B3

NONVIABLE D CCC

CC

R

Caa C

D E Ca

F C

4 IMPORTANT QUESTIONS

Page 36: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

Selecting an Insurance Company

A.M. Best 908-439-2200 Standard & Poor’s 212-438-2400 Moody’s 212-553-1653 Fitch Ratings 800-893-4824

OBTAINING RATINGS

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Tips from the SEC Before buying any variable annuity do

your homework and compare; evaluate the insurance company

Request a prospectus from the insurance company or from your financial professional, and read it carefully.

The annuity contract contains: fees and charges, investment options, death benefits, and annuity payout options.

Compare it to other annuities and other types of investments.

Page 38: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

Current 5 YR CD Rates Top 3 APY Rates

2.02%

2.00 % 1.92 %

Annuity vs CD

2.25% vs 2.02%

Page 39: Lee Conti, Jr. - cdn.ymaws.com€¦ · Before buying any variable annuity do your homework and compare; evaluate the insurance company Request a prospectus from the insurance company

Do it yourself

Work with your Advisor

Consult with a CFP® or CFP® & Annuity

expert team

Do nothing – annuities are not prudent for

everyone

Where Do You Go from Here?

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Q & A (10 min) contact info Lee Conti Jr. (914)-752-4469

[email protected]


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