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When considering the formula for present value of an seven percent return annuity, there are many factors to investigate along the way. While some may consider this to be a cumbersome activity, history suggests that investigating the present value of an annuity due will pay often off if not immediately then down the road. For example is one considering the purchase of an existing annuity due, or is one considering the sale of an existing annuity due, or the purchase of a new annuity? Or is one considering evaluating an existing annuity for estate tax purposes? What discount rate assumptions are proper and what financial crediting factors are appropriate?

 

 
 
Tags:  seven percent return  7 percent return  7 % return  7% return  seven percent annuity return  7 percent annuity return  7 % annuity return  7% annuity return 
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Published:  April 20, 2012
 
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Slide 1: ==== ==== When considering the formula for present value of an seven percent return annuity, there are many factors to investigate along the way. While some may consider this to be a cumbersome activity, history suggests that investigating the present value of an annuity due will pay often off if not immediately then down the road. For example is one considering the purchase of an existing annuity due, or is one considering the sale of an existing annuity due, or the purchase of a new annuity? Or is one considering evaluating an existing annuity for estate tax purposes? What discount rate assumptions are proper and what financial crediting factors are appropriate? http://www.sevenpercentreturn.com ==== ==== According to Morningstar, the 10 year trailing total return for the S&P 500 ending September 21, 2010 is negative. The total is (-0.53). A very small loss but a loss just the same. The go-go days of 10% plus annual returns ended with the dotcom stock bubble busting back in 2000. Hundreds of billions of dollars still sit in 401k accounts and IRAs currently invested in mutual funds and stocks by investors over age 50. Is this wise? Also, with the tax favored window of opportunity for Roth Conversions open at this time, is this your opportunity to move funds to an annuity as an option? Mutual funds and stocks are suitable investments for younger people who can absorb risk with the advantage of time on their side to recoup losses. As folks get older, asset management is critical to protect the nest egg for retirement or to pass it on to children. Unfortunately many people leave their money in bad investments or take on too much risk. If you want to go to Vegas and have fun, great! But you should not get your thrills by betting on the equity markets while taking downside risk with a limited time horizon to recover. On the other hand, one can be too conservative and put 100% of their money in low yielding 12 month CDs earning an average 1-1.5% currently. One alternative is to invest in annuity products from top rated insurance companies. A popular product is the Equity Indexed Annuity (EIA). If you are thinking about a Roth conversion, consider EIAs as part of your investment strategy. They might not be right for you but are worth consideration. An individual converting in 2010 from a traditional IRA to a Roth can elect to defer the tax and report half of the income on the 2011 tax return and the rest on the 2012 return. Are taxes going up in the future? Almost certainly they are, even if the GOP takes over this fall. The budget deficits have to be addressed and the national debt can't just grow unabated forever. If taxes are going up, converting to a Roth makes sense for those investors who may have a large retirement income. If you expect your income to be less at retirement, then a Roth may not be your best option. You may balance your Roth conversion by having accounts with mutual funds in one, CDs in another, and an annuity. The Equity Indexed Annuity provides protection of invested principle no matter what the stock market does while offering the potential for superior returns if the market does well. Some insurers offer a "bonus" on the initial investment of up to 10%. Equity Indexed Annuities are based on different indexes like the Dow Jones Industrial Average, the New York Stock Exchange Composite index, the S&P 500 Stock Price and the Nasdaq-100 Index. The guaranteed minimum return
Slide 2: rate, if any, depend on how the contract is written. Most of these products afford investors the opportunity to put some of the funds in a bond index, some in a stock index etc. However, keep this in mind, an EIA is not going to match performance of the stock market on the way up. It tracks the market via a complicated formula. In most cases the returns are capped so the upside is limited. This product may provide a better return than non-indexed investments but is not going to produce equivalent gains to equities themselves. Like other traditional fixed rate annuities, you may opt for a lifetime income at retirement or may cash it in once you have met the required holding period to avoid surrender charges. Annuities may be purchased from various sources. Many advisors have a "turf" and are partial to their products. Brokers like stocks and mutual funds, bankers like CDs, and insurance agents like annuities. If you are considering an annuity, seek out a trained insurance professional who specializes in this area. Make sure they carry Errors and Omissions coverage and have a clean record with the State Insurance Commissioner. Today, agents have to make sure a person seeking an annuity is "suitable" for this investment. Some greedy agents in the past have ignored suitability, but regulatory action now has put in place protections to prevent this kind of abuse. Suitability is very important because a major downside to an Equity Indexed Annuity is that it is a long-term investment with serious penalties for early surrender. Often these surrender charges are on the order of 10% or more. Almost all EIAs require holding periods of 5-10 years to avoid surrender charges. There are also potential tax implications when early withdrawals are taken. An annuity is not guaranteed by the US government although many states have guarantee funds. During the recent financial meltdown of 2008-09, some major stock brokerage firms did not make it. No major US life insurers failed during the crisis although some like AIG did get government assistance. A person should not lockup all of their investment dollars in an annuity. If someone tries to put all of your investment dollars in any one product, think very carefully about whether they have their best interests or yours at heart. Whether or not a Roth conversion is something that may benefit you is a matter to discuss with your tax advisor. James Robert Coleman, E.A., A.T.A. Enrolled Agent & Accredited Tax Advisor Licensed Insurance Agent in Texas, LA, and VA. http://www.exirsman.com Article Source: http://EzineArticles.com/?expert=James_Coleman
Slide 3: ==== ==== When considering the formula for present value of an seven percent return annuity, there are many factors to investigate along the way. While some may consider this to be a cumbersome activity, history suggests that investigating the present value of an annuity due will pay often off if not immediately then down the road. For example is one considering the purchase of an existing annuity due, or is one considering the sale of an existing annuity due, or the purchase of a new annuity? Or is one considering evaluating an existing annuity for estate tax purposes? What discount rate assumptions are proper and what financial crediting factors are appropriate? http://www.sevenpercentreturn.com ==== ====

   
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