As you approach old age, you should be aware of the fact that you have a variety of options in the Virginia annuities market.
Knowing what each program has to offer can greatly improve your ability to find the coverage that suits your needs.
Below we outline 10 different types of annuity options you could consider as part of your estate plan.
1. Straight Life Annuity
A straight life annuity is an annuity – or periodic payments – paid to you over the course of your retirement.
These installments act as a source of income once you have retired.
To establish a straight life annuity, you pay a premium just as with other life insurance policies.
These premiums tend to be higher due to the nature of repayment in retirement.
Although annuities are useful in retirement, they become useless when you die.
Straight life annuity funds cannot be passed on to beneficiaries, and the policy is terminated after your death.
Your benefits and accrued lifelong annuity are dissolved.
2. Life Annuity with a Period Certain
Otherwise known as “income for a guaranteed period,” this option is similar to a straight life annuity.
However, this investment does allow you to leave your accrued investment in the annuity to your beneficiaries.
You pay a premium over the course of your life, and once you retire, you begin to receive the periodic payments established by your annuity agreement.
Your annuity will be given a term of payment, and once that term is over, the payments cease.
Once you die, the remainder of your annuity is paid to your beneficiaries until the end of your annuity’s payment period.
3. Cash Refund Annuity
A cash refund annuity is an annuity investment, however there is a bit more financial security.
You pay a premium over the course of your life, receiving the benefits of the annuity after retirement.
The difference is the guarantee of an equal payout of investment to you or your beneficiaries.
Whatever the amount of your lifetime payments, you or your beneficiaries will receive that amount in the form of monthly retirement payments or inheritance of the lump sum.
Your beneficiaries will receive a lump sum of what remains of your investment, minus the annuity cost and and payments you have already received.
4. Installment Refund Annuity
An installment refund annuity option provides your beneficiaries with the difference of the payments you did not receive from your annuity.
If your total investment is not repaid through your installments at the time of your death, a beneficiary begins to receive the difference in monthly installments, rather than in a lump sum payment.
This annuity will continue to pay you or your beneficiaries until the annuity is paid out in an amount equal to the purchase price.
5. Joint Life Annuity
With a joint life annuity, you are able to cover you and your spouse with life insurance.
After retirement, you receive installments of your lifelong investments in the annuity.
These payments are continued until the death of the first policyholder.
Once you’re gone, the payments to those covered in your joint life annuity cease.
This type of annuity is not typically suited to spouses due to the lack of post-mortem income provided to the surviving spouse.
6. Joint and Survivor Annuities
Joint and survivor annuities operate differently from individual annuities. With a joint and survivor annuity in place, you cover yourself and your spouse with insurance for life.
Upon your retirements, you both receive benefits in the form of installments.
You are both entitled to receiving individual installments under the same annuity.
However, once you or your spouse dies, the annuity payment is decreased by half or a third, depending on the terms of your annuity.
This type of annuity is beneficial for couples who are seeking to secure the finances of the surviving spouse.
The continuous payments act as income during retirement, securing your surviving spouse’s source of income.
7. Variable Annuity
Variable annuities function differently from term payment annuities.
A variable annuity is purchased outright from an insurer in a single payment, or in a short series of payments.
This purchase entitles you to the coverage and benefits of an annuity without making monthly annuity payments.
In your variable annuity, your insurer will guarantee your periodic payments following your retirement.
Your variable annuity also grants death benefits to your beneficiaries, who are able to inherit the remainder of your annuity.
Tax-deferral is another major point of interest in variable annuities.
You are not subject to paying income taxes on your annuity or investment until your funds are withdrawn.
8. Indexed Annuities
An indexed annuity carries qualities that are attractive to those who are willing to make risky investments while receiving secure post-retirement income.
This annuity guarantees that your investment will receive the minimum interest rate available.
Indexed annuities are a risk, but they can reward you in the form of yielding higher interest earnings based on index changes of stocks in which you hold investments.
However, your contract’s value will not be less than the minimum covered by your annuity, no matter how poorly your investment performs.
9. Individual Retirement Annuities (IRA)
IRA’s are commonly referred to when planning for retirement.
There are two main types of individual retirement annuities: traditional IRA’s, and Roth IRA’s.
A traditional IRA is established so that you or your spouse are able to make contributions in preparation for your retirement.
You are eligible to establish a traditional IRA if you are below the age of 70 1/2 and have a taxable income.
With this annuity, you and your spouse are able to deduct your contributions from your income taxes for each tax year.
A Roth IRA is open to any age, so long as you are receiving a taxable income that falls below the threshold income requirement.
With a Roth IRA, you and your spouse cannot claim the contributions on your taxes.
With both IRA options, you and your spouse are able to withdraw funds at any time.
A contribution cap is set at $6,000 total for your IRA, or $7,000 if you’re over 50.
If possible, you can contribute your taxable compensation for the tax year, rather than remain limited to the compensation thresholds of your IRA.
10. Market Value Adjusted Annuities
With a market value adjustment annuity, you are investing your money in the annuity with a fixed rate of interest.
Surrendering your annuity contract before the term is over allows you to apply an adjustment to the contract’s value based on the current market.
The adjustment can be positive or negative, depending on the market at the time you surrender.
However, the market value adjustment is not applicable for death benefits, withdrawals, or contracts that have come to an end.
When you apply the market value adjustment, you will receive the contract value plus or minus the market changes to that value.
Ultimately, you invest in an annuity that allows you to risk making or losing money later in the contract.
Before investing in an annuity, seek financial guidance before making your decision.
An annuity investment is an important piece of your Virginia estate plan.
To ensure you are protecting all of your assets, schedule a consultation with our estate planning attorney to organize your personal estate plan.