The Long and Successful History of Deferred Annuities
One of the early recorded uses of annuities in the United States was by the Presbyterian Church back in 1720. The purpose was to provide a secure retirement to aging ministers and their families, and was later expanded to assist widows and orphans.
This was not the earliest form of annuity. For that, we have to go all the way back to the Roman Empire over two thousand years ago. Speculators in ancient Rome sold what was called Annua, which was an annual payout; thus Annua is the root word for what we term an annuity today. The annuity has proven to be one of the most reliable and oldest financial tools in use throughout the world.
In 1912, Pennsylvania Company Insurance was among the first to begin offering annuities to the general public in the United States. Annuities have continued to grow in popularity and prove their value over and over as individuals, organizations and businesses look for secure ways to **guarantee retirement income.
Many famous and infamous people have made use of annuities in a beneficial way throughout history. Here are few of them you may recognize: Benjamin Franklin assisting the cities of Boston and Philadelphia; Babe Ruth avoiding losses during the great depression, OJ Simpson protecting his income from lawsuits and creditors. Ben Bernanke in 2006 disclosed that his major financial assets are two annuities. Many professional people such as sports figures, doctors and actors use annuities to secure their future income needs.
Understanding Deferred Annuities
- Deferred annuities originated approximately 100 years ago.
- Deferral in annuities allows the value of an annuity to increase.
- After a deferral period, an annuity can produce more income.
- They can be purchased in periodic, systematic or lump sum payments.
- Deferred annuities have the added advantage of tax deferral – which is why they are commonly call tax deferred annuities.
- They can be annuitized providing a lifetime of income.
- Deferred annuities are the opposite of immediate annuities since immediate annuities begin income soon after they are purchased in a lump sum.
- Variable deferred annuities are typically invested in the securities market and the client assumes the market risk.
- Fixed deferred annuities are typically invested in high quality A-AAA government and investment-grade bonds with to the client.
- Fixed index deferred annuities are never invested into a market index. They are only using the index as a gauge to credit interest to the client.
- Deferred annuities are creditor-protected in most states.
- Deferred annuity refers to a type of annuity that has a multi-year interest **guarantee. Only Bank Products are FDIC insured.
- Deferred annuities are first **guaranteed by the claims paying ability of the insurer and then each state has a State Insurance Guarantee Association (SIGA) with varying coverage limits.
All deferred annuities enjoy tax deferral, with no income tax requirement until withdrawal. This is a definite advantage over many investments like CDs, mutual fund^s and securities-oriented investments when considering a long term retirement plan. A long term fixed annuity investment may outperform CDs, bonds and treasuries. Reinvesting money that would otherwise be paid out in tax over an extended period of years is always an advantage. In addition, deferred annuities have several benefits that are important for retirement planning.
Question: Which of your assets are normally exempt from Medicaid spend down when you are well and your spouse needs long term care?
Answer: Your home, one car, prepaid funeral expenses, actuarially sound annuities and approximately $120,000 dollars in a cash asset. Income limits are approximately $3,000 monthly. Check your state for exact amounts as they vary from state to state.