Annuities
An annuity is a contract between an insurance company and
an individual. The funds that are invested in annuities can accumulate for or
during retirement and can be used to generate income if an individual is over
age 59 1/2. One of the most attractive features about annuities is that taxes
are deferred until the year they are withdrawn.
The real benefit is that, over time, the funds within the
annuity can accumulate more quickly than a taxable
investment, thus producing greater retirement income. It is important to note
that with annuities, the contract owner decides when to withdraw income and
therefore has control over the payment of taxes. Taxes will be due upon
withdrawal, and withdrawals prior to age 59 1/2 may be subject to a 10 percent
penalty.
Types of Annuities
Fixed Annuity: Funds are invested for a
guaranteed interest rate for a fixed number of years. Interest may accumulate
or be withdrawn as needed, paying taxes only on the amount withdrawn. Typical
terms range from one to ten years.
Variable
Annuity: Funds are invested in a
professionally managed portfolio of stocks, bonds, or both, depending on an
individual's selection. Returns vary depending on the performance of the
portfolio. Earnings may be withdrawn as needed, paying taxes only on the
amount withdrawn. Many of the portfolio managers are the same as today's most
popular mutual funds. A variable annuity's Guaranteed Death Benefit guarantees
the individual's beneficiary at least the amount paid or more, regardless of
the portfolio's return. Since the death benefit guarantee is based
on the claims-paying ability of the issuing insurance company, it is important
to choose a financially secure insurance company.
Immediate Annuity: Immediate income
guaranteed for a set number of years or for the remainder of an individual's
life.
Another benefit of most annuities, is the lack of up-front
sales charges. This allows more of the funds to go to work immediately.
Instead, annuities have contingent deferred sales charges, commonly known as
surrender charges. An individual must keep a contract for a set number of
years or pay a penalty to get their funds back. Annuities have varying degrees
of expenses, fees, and investment risks.
Variable annuities are
offered by prospectus only. Investors should consider an annuity's investment
objective, risks, charges, and expenses carefully before investing. The
prospectus, which contains this and other important information, is available
from your Financial Advisor and should be read carefully before investing.
Variable annuities are not insured by the
FDIC or any government agency and involve market
risk, including the possible loss of principal. Guarantees are based on the
claims-paying ability of the issuing insurance company.
