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Annuity Basics

Annuities

An annuity is a retirement planning tool designed to protect against the risk of outliving one's financial resources. Annuities are one of the few financial vehicles that allow your money to grow tax deferred.1 Furthermore, you have several annuity income options, including the choice to receive either a steady stream of income throughout your lifetime or one lump sum payment if you choose to surrender the policy.

Immediate or deferred?

Annuities can be categorized as either immediate or deferred. An immediate annuity provides income payments shortly after you make the initial annuity payment. A deferred annuity delays annuitization, which provides more time and opportunity for your money to grow tax deferred.

Fixed or variable?

There are two basic types of annuities: fixed and variable. In a fixed annuity, your cash value earns a current rate of interest, which will never go below a minimum guaranteed interest rate. Variable annuities provide a variable rate of return, which will fluctuate depending on the performance of the sub-account investment portfolios you select. A variable annuity offers more growth potential and investment choices than a fixed annuity, but also carries more risk. If you annnuitize a fixed or variable annuity, you are guaranteed a fixed payout when you begin to receive your annuity income.

Annuitization options

There are several ways to receive your annuity income payments:

  • A life only provides income until the annuitant dies.
  • A period certain only provides income for a fixed period of time, such as 10 or 20 years. If the annuitant dies during the specified period, payments continue to the beneficiary or the beneficiary can choose to receive the value of the remaining payments in a single sum.
  • A life annuity with period certain provides income until the annuitant dies. If the annuitant dies during the specified period certain, the insurer will pay the balance to the contingent payee you have selected.
  • A joint and survivor2 provides income to the annuitant and joint annuitant until they die.
  • A joint and survivor with period certain2 provides the annuitant and the joint annuitant with a fixed income for a specified period, such as 10 or 20 years. If both joint annuitants die during the specified period, payments continue to the beneficiary or the beneficiary can choose to receive the value of the remaining payments in a single sum.
  • A joint and contingent provides fixed income for the annuitant’s life, then to the contingent payee when the annuitant dies.

Which type of annuity is right for me?

Every person has unique retirement needs. That's why it is important to speak with a qualified financial advisor who can assess your particular situation including your plans for the future and your current financial status. After evaluating your needs, you and your financial advisor can discuss the various investment options available.

How much money do I need to save for retirement?

There are many factors that can contribute to a satisfying retirement. One very important factor is the sufficiency of your resources to fund the retirement lifestyle that you seek. We have provided the Retirement Needs Calculator to help you estimate how much money you will need to save to fund your retirement but you should consult with your financial advisor to discuss your particular situation.

1Tax deferral is available only to individuals. It is not available for annuities owned by entities such as corporations and most types of trusts. There is no additional tax benefit derived from placing IRA or other tax-qualified funds into an annuity.

2Payout options may not be available for all products in all states.