Adding Annuities to a Financial Plan
Annuities can be a powerful tool to enable clients to meet their retirement goals. RightCapital allows annuities to be added as assets in a client's profile and also to use annuities as a modeled income strategy. If clients own existing annuity accounts, enter them on the Profile > Net Worth screen by adding an Investment account.
Annuity types
Variable Annuities
Fixed Annuities
Indexed Annuities
Entry | Description |
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Cap | The maximum rate of return applied to the account in any year; if the Cap is set to 6%, the maximum increase in any year will be 6%. |
Floor | The minimum rate of return applied to the account in any year; if the Floor is set to 0%, in any year where the return is less than 0%, the account value will not decrease but will return 0%. |
Spread | The amount that is used to reduce the index rate each year. For example, if the spread is 2% and the index returns 7%, we will credit 5% (7% - 2%) for that year. |
Participation | The percentage that is used to reduce the index rate each year. For example, if the participation rate is 80% and the index returns 7%, we will credit 5.6% (7% * 80%) for that year. |
Indexed Variable Annuities
Indexed Variable annuities, sometimes referred to as buffer annuities, are similar to indexed annuities but do not entirely protect against market loss. An Indexed Variable annuity is also tied to the Large Blend Index. The insurance company will cover a set percentage of losses in a given year, known as the buffer. Any additional losses above the buffer will reduce the account value.
Entry | Description |
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Cap | The maximum rate applied to the account in any year; if the Cap is set to 6%, the maximum increase in any year will be 6%. |
Buffer | The percentage of loss that the insurance company will absorb in a given year. If losses exceed the buffer percentage, the account value will be reduced. For Example, if the buffer % is set to 10%, and the index loses 25% in a year, the account will drop by 15% (25% - 10%). |
Participation | The percentage that is used to reduce the index rate each year. For example, if the participation rate is 80% and the index returns 7%, we will credit 5.6% (7% * 80%) for that year. |
Annuity Distributions
The annuity's value will be used to fund cash flow deficits if necessary once taxable accounts are depleted. Income distributions can be set up to withdraw a specific amount each year from the annuity, non-guaranteed.
- Income type can be either percentage or amount:
- Percentage reflects that the income amount will be calculated as a percentage of the total accumulated annuity account value.
- Amount reflects that the income will be the specific amount entered.
- Annual increase indicates whether, and if so, by how much, the income amount increases each year after annuitization. This can reflect a cost of living adjustment (COLA) option or any guaranteed increase.
- Type indicates the period for which the annuity income will last. Users who select Life only or Certain Life will see another input asking if it is based on Single/Joint life. Single annuitization will pay until the end of the card owner's plan, while joint annuitization will pay until the end of both plans.
- Life only reflects payment for the life of the owner(s) of the annuity. '
- Certain only reflects payment for a specific duration; if selecting 'Certain only', input the year that income should end in the Guaranteed Period field.
- Life/Certain reflects payments for the longer of either the client's life or the period indicated.
Entry | Description |
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Benefit Base | The value used to calculate the client's guaranteed lifetime income amount will be a percentage of the benefit base. The benefit base will generally increase by a fixed rollup rate or a step up to the client's account value. In projections, RightCapital will automatically step up the benefit base each year, if applicable, in addition to the rollup specified. |
Rollup rate | The rate at the benefit base is guaranteed to increase yearly. |
Rollup rate compounding | If checked, the benefit base will increase by a compounding rollup rate; if unchecked, it will increase by a simple interest rate. |
Rollup stop year | The year the benefit base stops increasing automatically by the rollup rate. RightCapital will also stop the rollup rate in the Income starts year, if earlier. |
Income starts | The year that guaranteed lifetime income withdrawals from the annuity begins. |
Income type: Percentage | This reflects that the income amount will be calculated as a portion of the accumulated benefit base. |
Income type: Amount | This reflects that the income amount will be the specific amount entered. The benefit base and associated parameters are ignored if the amount is applied. |
Annual Increase | This field indicates whether, and if so, by how much, the income amount increases each year after lifetime income begins. This can be used to reflect a COLA option or any guaranteed increase. |
AV based fee | Illustrate any annuity fee calculated based on the client's account value (AV). |
Benefit base fee | Illustrate any annuity fee calculated based on the client's benefit base. |