What is it?

An annuity is a contract between you and your insurance company that allows your earnings to grow and compound tax deferred. Tax deferral is a powerful benefit you can use to help accumulate wealth for your retirement or meet other long-term financial goals.

 

Variable annuities are investments subject to market risk, and you may lose money, including principal investment and interest you may have earned. The word "annuity" literally means "annual payments." An annuity has an accumulation phase as well as a payout phase. When you buy an annuity, the insurance company agrees to pay you an income for a specified period of time - either beginning immediately (an immediate annuity) or after an accumulation period ends (a deferred annuity).

 

Why do I need it?

The advantage to annuities is that they allow you to save larger amounts of money and defer paying taxes. There is no annual contribution limit as is typical for an IRA and 401(k). This allows you to save more money for retirement.

 

Common Questions

What type of annuities are there?

There are two main annuity types:

Immediate Annuity

Your income payments start right away. You choose whether you want income guaranteed for a specific number of years or over your lifetime. The insurance company calculates the amount of each income payment based on your purchase amount and your life expectancy.

Deferred Annuity

This has two phases:

Accumulation Phase

• During this phase, you let your money grow. Your earnings grow tax-deferred until withdrawn. You decide when to take income from your annuity, and therefore, when to pay the taxes.

Payout Phase

• During this phase you begin to receive scheduled payments. The payout phase begins when you withdraw income from your annuity. For most people, this is during retirement. As your needs dictate, you can take partial withdrawals, completely surrender your annuity, or convert your annuity into a stream of income payments (known as annuitization). This last option is essentially the same as buying an immediate annuity.

 

 

What are the annuity payout options?

Whether you're buying an immediate annuity or converting a deferred annuity into income payments, your options are essentially the same. You can choose to receive payments monthly, quarterly, semiannually, or annually. You can select a specific period of time in which to receive payments. You can also choose an option that will guarantee income payments for as long as you live.

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