Buffered Annuity Portfolios

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Each individual has his or her own unique investment and retirement income goals, risk tolerance level, tax considerations, investment time horizon, etc., which may be achieved with different investment and retirement income solutions.

We implement Buffered Annuity Portfolios as a component of some investors' investment and retirement income portfolios.

Buffered annuities are index-linked variable annuity products that:

(1) provide you with a defined degree of downside risk protection from losses during down markets (a "Buffer"),

(2) offer you higher growth potential than fixed index annuities during up markets, and

(3) your principal can grow and compound tax-deferred.

Buffered annuities, in essence, act like hybrid variable annuities with some fixed index annuity features. They fall in the middle of fixed index annuities and variable annuities in terms of risk tolerance and growth potential.

Whereas multi-year guarantee annuities and fixed index annuities are designed to replace some of the fixed income asset allocation portion of your your investment and retirement income portfolio, buffered annuities are designed to replace some of the equity asset allocation portion of your investment and retirement income portfolio.

Buffered annuities have become extremely popular due to pre-retiree and retiree investors’ concerns about stock market volatility and bear markets (when an investment falls 20% or more from recent highs).

Losses during bear markets, combined with simultaneous retirement income distributions, can significantly deplete an investment and retirement income portfolio, with extremely detrimental long term ramifications to your retirement income and lifestyle.

As a result, many individuals nearing or in retirement have turned to buffered annuities as part of their equity allocation because they provide a level of protection against Sequence Of Returns Risk.

Solve For Equity Replacement And A Level Of Principal Protection In Down Markets

You may want to consider using a buffered annuity to replace some of the equity portion of your overall asset allocation plan to help reduce downside portfolio risk.

​Depending upon the indexed account option you choose, buffered annuities provide you with a level of protection (a "buffer") when the market goes down.

Each indexed account option is a combination of:

(1) the index you select (for example, the S&P 500 Index, Nasdaq-100 Index, Russell 2000 Index, etc.),

(2) the crediting method you select (also called an index strategy) - Cap or Performance Trigger, and

(3) the time period for measuring the index performance you select (term).

Buffer

Buffers are designed to provide you with a degree of risk protection over a contract term to help lower your exposure to risk. 

Following are the most popular buffers offered based upon the performance of the S&P 500 Index over a 1-year term:

> 10% Buffer

> 15% Buffer

> 20% Buffer

The insurance company will protect against the specified percentage loss ("buffer") for the term - and you will be exposed to any losses greater than the buffer.

For example, if you select a 1-year term with a 15% Buffer based upon the performance of the S&P 500 Index:

(1) If the S&P 500 Index falls anywhere between 0% and the 15% buffer for the contract term, then the insurance company will absorb the entire loss, and you will lose nothing (0%).

(2) If the S&P 500 Index drops 18% for the contract term, then the insurance company will absorb the first 15% of the loss, and you will lose 3%.

(3) If the S&P 500 Index plunges 24% for the contract term, then the insurance company will absorb the first 15% of the loss, and you will lose 9%.

Solve For Equity Replacement In Up Markets

Buffered annuities also may be appealing if you are willing to forego the 100% principal protection that fixed index annuities offer in exchange for potentially higher returns than fixed index annuities offer.

Depending upon the indexed account option you choose, buffered annuities offer a "cap" option or a "performance trigger" option that provide you with a level of performance when the market goes up.

Each indexed account option is a combination of:

(1) the index you select (for example, the S&P 500 Index, Nasdaq-100 Index, Russell 2000 Index, etc.),

(2) the crediting method you select (also called an index strategy), and

(3) the time period for measuring the index performance that you select (term).

Cap

Caps provide you with the potential to earn a portion of the increase in an index over a contract term.  

For example, if you select a 1-year term with a 13.50% Cap based upon the performance of the S&P 500 Index:

​(1) If the S&P 500 Index gains any amount equal to a greater than 13.50% for the contract term, then you will earn 13.50%.

(2) If the S&P 500 Index gains any amount from 0% to 13.50% for the contract term, then you will earn the same percentage of interest that the index gains. For example, if the index gains 4.17% for the contract term, then you will earn 4.17%

​Performance Trigger

Performance triggers provide you with the potential to earn a specified percentage if the index gains any amount equal to or greater than 0% over a contract term.

For example, if you select a 1-year term with a 10.00% Performance Trigger based upon the performance of the S&P 500 Index:

(1) If the S&P 500 Index gains any amount equal to or greater than 10.00% for the contract term, then you will earn 10.00%.

(2) If the S&P 500 Index gains any amount from 0% to 10.00% for the contract term, then you will earn 10.00%. For example, if the index gains 4.17% for the contract term, than you will earn 10.00%.

No single indexed account option consistently delivers the best return under all market scenarios and performance will vary depending upon market conditions.

*Most insurance companies charge no annual fee on buffered annuities (if no Income Rider is attached). Advisor fees may be deducted and paid quarterly, in arrears, based upon the market value of the Assets on the last day of the current quarter.

Solve For Tax-Deferred Growth

If you purchase a buffered annuity in a non-qualified account (for example, assets held in individual or joint accounts) - you don't pay taxes on the gains until gains are withdrawn - so your gains can grow and compound tax-deferred for as long as you want.

Also, unlike Traditional IRAs, 401(k)s and other retirement vehicles, buffered annuities do not have mandatory Required Minimum Distributions ("RMD") so you can enjoy the benefits of compounded tax-deferred growth for as long as you wish.

When buffered annuities mature, they can be renewed or exchanged to another buffered annuity or other type of annuity without tax consequences to defer income until later in retirement when you may be in a lower tax bracket and withdrawals may be taxed at a lower rate.

May Help Reduce Taxes On Social Security Income

Potentially up to 85% of your Social Security benefits may be subject to income tax depending upon:

(a) your Social Security benefits,

(b) the amount of income you are earning, and

(c) the sources of your income during retirement.

Interest on savings accounts, CDs, money market mutual funds, taxable bonds and municipal bonds is included in Provisional Income, the IRS threshold above which social security income is taxable.

However, buffered annuity gains can compound and grow tax-deferred and be excluded from the Provisional Income calculation until gains are withdrawn.

By moving some of your funds into a buffered annuity, you may be able to help reduce taxes on your Social Security income, by controlling the timing and amount of withdrawals from your buffered annuity, when you may be in a lower tax bracket and withdrawals may be taxed at a lower rate.

Following is a brief illustration of how to add a buffered annuity to the equity allocation of your overall investment and retirement income portfolio to help reduce portfolio risk.

Following is a summary of key features and benefits that buffered annuities offer:

A Level Of Principal Protection

Buffered annuities are indexed-linked variable annuities and can lose value. However, unlike traditional variable annuities that can lose unlimited value, buffered annuities provide a level of protection from stock market down turns.

Buffered annuities are issued by life insurance companies and guarantees are backed by the financial strength and claims paying ability of the issuing insurance company. We work with only the highest rated insurance companies in the industry. Buffered annuities are regulated by FINRA and the SEC. *, **, ***

Buffered Annuities Provide A Level Of Protection Against Sequence Of Returns Risk as you near or are in retirement, which may lower your stress level, and give you more Peace Of Mind.

Buffered Annuities Can Become Part Of Your Equity Allocation To Help De-Risk Your Investment And Retirement Income Portfolio

Indexed Account Options

You can combine different indexed account options. Index Account Options can be changed at the end of each indexed account option term throughout the life of the contract.

Indexed account option caps, performance triggers, participation rates, buffers and floors are subject to change each indexed account option term.

Contract Terms

The majority of buffered annuity contract terms range from one to six years.

Gains And Losses Permanently Locked In At The End Of Each Index Account Option

Contract Term Throughout The Life Of The Contract

Gains can be automatically added to your annuity contract to compound and grow tax-deferred… or… gains can be sent directly to your bank account.

Some buffered annuities will allow you to lock in the performance up to the cap at any point during a term if the cap is reached before the end of the term.

Penalty-Free And Systematic Withdrawal Options

Some buffered annuity contracts allow you to withdraw up to a specified percentage of principal each year during the life of the contract without being subject to an early surrender charge (if applicable).

Flexible Funding

Buffered annuities can be funded with a lump sum and, in addition,  allow you to add money over time.

Can Be Purchased In IRA, Roth IRA and Non-IRA Accounts ****

Your Gains Can Compound And Grow Tax Deferred In Non-IRA Accounts

Buffered annuity gains compound can grow tax deferred in non-qualified accounts (for example, assets held in an individual or joint account) until the money is withdrawn.

When buffered annuities mature, they can be renewed or exchanged to another buffered annuity or other type of annuity without tax consequences to defer taxes until later in retirement when you may be in a lower tax bracket and distributions may be taxed at a lower rate. ****

May Help Reduce Taxes On Social Security Income

Potentially up to 85% of your Social Security benefits may be subject to income tax depending upon:

(a) your Social Security benefits,

(b) the amount of income you are earning, and

(c) the sources of your income during retirement.

Interest on savings accounts, CDs, money market mutual funds, taxable bonds and municipal bonds is included in Provisional Income, the IRS threshold above which social security income is taxable.

However, buffered annuity gains can compound and grow tax-deferred and be excluded from the Provisional Income calculation until gains are withdrawn.

By moving some of your funds into a buffered annuity, you may be able to help reduce taxes on your Social Security income, by controlling the timing and amount of withdrawals from your buffered annuity, when you may be in a lower tax bracket and withdrawals may be taxed at a lower rate. *****

Some Buffered Annuities Offer Income Riders That Can Be Attached For Future Guaranteed Lifetime Income

May Avoid Probate

Any remainder in your buffered annuity may potentially pass efficiently outside of probate and be paid directly and discreetly to your beneficiaries (not the insurance company) within weeks after all required paperwork is received in good order. That allows your loved ones to bypass the long, painful and costly probate process - saving them time, court costs, administrative costs and legal fees.*****

If you should die before liquidating a buffered annuity, your beneficiaries will get the remaining value of your buffered annuity as a death benefit – not the insurance company!

Create A Legacy That Lasts

Spousal Beneficiaries And Inherited Buffered Annuities

The taxes your spouse may owe will be dependent upon the distribution option he or she chooses when they inherit your annuity. Any taxes owed on distributions are deferred until he or she receives them.

Qualified (IRA) Annuities

A spousal beneficiary may elect to:

(a) receive a one-time lump sum payment; 

(b) keep the buffered annuity in your name, continue enjoying the benefit of compound tax-deferred growth, and take out RMDs using his or her life expectancy or a payout option that provides income for a specified period of time;

(c) switch the buffered annuity into his or her name, continue enjoying the benefit of compound tax-deferred growth, and take out RMDs using his or her life expectancy or a payout option that provides income for a specified period of time, or

(d) exchange the inherited annuity to another annuity if it is more beneficial to his or her specific situation, continue enjoying the benefit of compound tax-deferred growth, and take out RMDs using his or her life expectancy or a payout option that provides income for a specified period of time. *

* Note: Options (b), (c), and (d) potentially may help your spouse significantly reduce taxes on inherited qualified buffered annuities by deferring taxes until later years when he or she may be in a lower tax bracket and withdrawals may be taxed at a lower rate. ******

Non-Qualified (non-IRA) Annuities

A spousal beneficiary may elect to:

(1) receive a one-time lump sum payment, or 

(2) select from options (b), (c) or (d) above. *

* Note: Options (b), (c) and (d) are known as a “Non-Qualified Stretch” and potentially may help your spouse significantly reduce taxes on inherited non-qualified buffered annuities by deferring taxes until later years when he or she may be in a lower tax bracket and withdrawals may be taxed at a lower rate. *******

Non-Spousal Beneficiaries And Inherited Buffered Annuities

The taxes a non-spousal beneficiary may owe will be dependent upon the distribution options he or she chooses when he or she inherits your annuity. Any taxes owed on distributions are deferred until he or she receives them.

Qualified (IRA) Annuities

A non-spousal Beneficiary may elect to:

(a) receive a one-time lump sum payment, or

(b) distribute 100% of inherited qualified buffered annuities within 10 years which may help significantly reduce taxes by deferring taxes until later years when he or she may be in a lower tax bracket. ********

Non-Qualified (non-IRA) Annuities

A non-spousal beneficiary may elect to:

(a) receive a one-time lump sum payment; 

(b) switch the buffered annuity into his or her name, continue enjoying the benefit of compound tax-deferred growth, and take out RMDs using his or her life expectancy or a payout option that provides income for a specified period of time, or

(c) exchange the inherited annuity to another annuity if it is more beneficial to his or her specific situation, continue enjoying the benefit of compound tax-deferred growth, and take out RMDs using his or her life expectancy or a payout option that provides income for a specified period of time. *

* Note: Options (b) and (c) are known as a “Non-Qualified Stretch” and potentially may help your non-spousal beneficiary significantly reduce taxes on inherited non-qualified buffered annuities by deferring taxes until later years when he or she may be in a lower tax bracket. *********

* Surrender charges and other contract charges may apply that can reduce the principal if liquidated before maturity.

** Guarantees are backed by the financial strength and claims paying ability of the issuing insurance company.

*** The insurance company charges no liquidation penalty if held until maturity; however, similar to assets held in an IRA, Buffered annuities are typically designed for long-term tax-deferred investing. If you take withdrawals before you reach age 59 1/2, then you may have to pay a 10% early withdrawal federal tax penalty in addition to ordinary income taxes. You should request and review a Product Prospectus, for complete information and restrictions that may apply, prior to making any decision to purchase a buffered annuity product.

**** The purchase of an annuity within a retirement plan that already provides tax deferral under sections of the Internal Revenue Code results in no additional tax benefits. An annuity should be used to fund a qualified plan based upon the annuity’s features other than tax deferral. All annuity features, risks, limitations, and costs should be considered prior to recommending the purchase of an annuity within a tax-qualified retirement plan. In addition to surrender charges, withdrawals are subject to income tax.

*****, ******, *******, ********, ********* Please consult with and rely on your own legal or tax advisor and refer to your contract.