Frequently Asked Questions (FAQ's)
Q: What is the difference between a variable annuity and a fixed annuity?
A: A variable annuity is actually participating in the stock market usually by use of mutual funds. You can vary your risk by going into more conservative funds as bonds and large cap funds or you can take on more risk with small cap funds, however, when the market goes down no matter which funds you are in, you will generally lose money. On the other hand a fixed annuity does not place your money in the actual market. A fixed annuity will usually set an interest rate when you purchase it and depending on your contract will pay that rate or never go below a certain guaranteed rate. You cannot lose your principal with a fixed annuity, and you will always at least get your guaranteed minimum rate..
Q: What is the difference between a fixed annuity and a fixed index annuity?
A: A fixed annuity has a set interest rate on the annuity which may go down to a guaranteed rate of interest but never lower. You can never lose your principal but your interest rate could decline to the guaranteed rate if you are in a declining interest rate environment. The rates are usually locked in for a year at a time. A fixed index annuity is linked to a market index such as Standard and Poors, or Nasdaq. A fixed index annuity is not actually in the stock market so if the market goes down, you don’t lose money, however, if the market goes up your interest rate is tied to the index so you have the potential of higher rates of return. There are several fixed index annuity programs. To find out more on those programs set up a consultation.
Q: What if I like some risk in my investments?
A: We never tell you how to handle your money. However, we will encourage you to at least take some of your money out of the risk arena so that you will have a portion of your assets in a guaranteed return program. The older you get the more advisable it is to take risk out of your program simply because you don't have as many years to wait for a market recovery.
Q: I have my money in CDs. They are safe. Why should I take my money out of CDs?
A: There are many reasons why you should consider turning in your CDs. The main reasons are they pay very low returns, and they are taxable. The low returns can’t keep up with inflation, the taxable status on them reduces the return on investment even further, and you pay a penalty if you take them out early.
Q: Won’t I pay a penalty if I buy an annuity and I take it out early?
A: Yes and no. Annuities are designed to have an accumulation period usually 5 to 10 years which is the time when your money is growing tax deferred for later years. Most annuities have a decreasing penalty for withdrawal usually starting at 10% the first year and decreasing thereafter, however, our annuities also have a free 10% withdrawal feature after the first year which means you can access 10% of your money, if you have to, every year free of penalty – starting at age 591/2. There are also annuities that are immediate which means they are designed to immediately start giving you an income. This is why it is important to have a program design in which different annuities can be used for immediate and long term needs.
Q: I have heard of the 50-50 rule can you explain that to me?
A: The 50-50 rule simply means if you lose 50% of your money in the stock market, you will need the market to go up 100% to get your original investment back. You can see the demonstration in our power point presentation on our website.
Q: Can you explain the “rule of 72”?
A: The “rule of 72,” discovered by Einstein, simply states that if you divide the number 72 into the interest rate you are earning on your investment, it will tell you how many years you need to hold your investment to double your money. For instance, at 3% your money will double in 24 years, at 9% your money will double in 8 years. You can see the demonstration in our power point presentation. This does not take into consideration the reduction in return do to income tax which is why a deferred tax investment is desirable to grow your money.
Q: If I buy an Annuity am I locked into receiving my money over lifetime payments?
A: No. You can always take the lump sum option. Annuity companies offer life time income options. This means you can never outlive your money, but most annuities also offer a lump sum feature which means you can take all your money out at once. It is important to weigh the benefits and disadvantages of income versus lump sum withdrawal which is why you need an experienced advisor familiar with all the financial benefits or consequences of your elections and an accountant to advise you on the tax consequences of each election.
Q: A lot of companies sell annuities, how do I pick the right company?
A: That is an extremely important question, because different companies have different financial strength ratings and stronger or weaker annuity programs. Because of the varying complexity of annuities and the differing financial strengths of the companies that sell them, it is important to work with an advisor who has knowledge and experience with the companies and their products. We, at Wealth Map, not only work with the strongest and largest companies, but we hand pick their best products. So the answer to your question is “Let us help you.”
Q: I need life insurance to protect my family but I don’t know if I can afford it?
A: We can design a program of term and fixed universal life insurance products that will fit your budget, give you the protection you need, and act as an investment vehicle. Call us for a consultation.
Q: I know I need long term care but I am only 50 and I think I will be wasting my money too early?
A: At some point everyone should purchase a long term care policy. The best time to do that is when you are younger and in good health, your premiums will lock in at a lower rate and you are guaranteed insurability. Once you have health problems, your chances of getting coverage go way down and one incident of needed coverage can make up for all the premiums you have paid in.
Q: If I call you for advice, will I be pressured into a consultation?
A: We don’t believe in pressuring our clients, we believe in serving them. Our integrity and products speak for themselves. We hope that all your encounters with us will be beneficial and helpful. We have built our reputation on the goodwill of our clients and we thank them for their trust.