Annuities 

Is Your Retirement on Track?

When it comes to your own retirement strategy, you may be wondering if you're on track to have enough assets and provide enough income at the retirement stage of your life.

• Are you prepared for a retirement that may last 10, 20, 30 years or longer?
• Will your retirement income last as long as you?
• Will you have enough money when you are ready to retire?

Are Annuities an Option?

Annuities are established for the purpose of providing a regular stream of income, typically upon retirement. They can be shaped and sized according to your needs and give you the option to begin receiving the income at a future date or immediately. You can fund your annuity gradually or all at once. Depending on the type of annuity, its value can be tied to a fixed interest rate or the performance of underlying investment funds.

You can arrange:

• for annuities to provide an income for a specific period of time or an entire lifetime.
• to receive income that is guaranteed from a fixed income plan or  income that is tied to the performance of underlying investment funds from a variable income plan.*
• to have annuities provide income to you alone, to you and a significant other, to continue to whichever of you lives the longest, and even to another beneficiary beyond the lifetime of you and any significant other.

*All guarantees are backed solely by the claims-paying ability of the issuer.

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Annuities... What Are They?

An annuity, generally, is a payment received at regular intervals.

Annuities typically are sold and backed by life insurance companies. You can establish an annuity contract to put aside money for retirement or provide yourself with a regular stream of income in retirement.

When it comes to making sure you are financially prepared for retirement, annuities can be very powerful vehicles. They provide the means to accumulate funds on a tax-deferred basis, which can make a significant difference in your ability to achieve the lifestyle you envision for yourself throughout this potentially very active stage of life.

Annuities are sometimes thought of as being the opposite of life insurance, in that you buy life insurance to pay a benefit in the form of policy proceeds to your beneficiary when you die, and you buy an annuity to pay a benefit in the form of a stream of income to yourself while you are alive.

How Annuities Work

In exchange for either a single deposit or a series of deposits you make into your annuity, the insurance company promises to make a series of payments to you out of the annuity — payments you can use to supplement your income after you retire.

The guarantees in an annuity are backed solely by the claims-paying ability of the insurance company, and should be a key consideration in making your purchase decision.

Phases of Annuities

• Deferral phase: Annuities have a deferral phase and an income phase. The deferral phase refers to the time period between the date the contract is established and the date of the first distribution. During this time, values accumulate on a tax-deferred basis, at either a fixed or a variable rate of return. If you have an immediate annuity, the deferral phase is either non-existent or very minimal, in that the first distribution from the plan typically takes place within one year. If you have a deferred annuity, the deferral phase will continue until the income begins at some future date.
  
  
• Income phase: Whether immediate or deferred, the income phase refers to the time period that income is withdrawn from the annuity, which may be for a specified number of years or for a lifetime.

Are Annuities Right for You?

Annuities are not "one size fits all" products, however, whether you are just starting to plan for retirement, are fast approaching retirement, or have already retired, an annuity may be right for you. Take the following points into consideration in determining if an annuity is right for you:

• Annuities can work to your advantage if you will not need to take distributions from the plan until after you reach the age of 59½. The IRS imposes a 10% early withdrawal penalty for distributions prior to 59½.
  
  
• Annuity contracts may impose a withdrawal (surrender) charge for early withdrawals made during the early years of the investment.
  
  
• The earnings from annuities are not subject to income tax until they are withdrawn. Your principal earns interest, and your earnings compound on a tax-deferred basis. This can be especially appealing if you are currently in a higher tax bracket than you expect to be in after you retire.
  
  
• For non-qualified contributions, there is no ceiling; you can contribute as much as you like.
  
  
• For non-tax qualified annuities the IRS does not impose mandatory distributions; you may delay taking distributions from an annuity well into your retirement years.
  
  
• Avoids probate – Annuities do not need to go through the probate process for your beneficiaries to receive the death benefit.

Questions to Consider:

Are you concerned about maintaining your lifestyle during retirement or the possibility of outliving your income?
Accumulating funds in an annuity during your working years can minimize gaps in income throughout your retirement years. Both immediate and deferred annuities offer a variety of income options, including those that can supplement your income during your early active years of retirement, help you sustain the lifestyle to which you have become accustomed, or guarantee a continuing income as long as you are alive, no matter how long that may be.*

If you have an employer-sponsored (tax-qualified) retirement plan, such as a 401(k), have you contributed the maximum amount?
If you have maxed out contributions to your employer plan and personal IRA, and want to save more for retirement on a tax-deferred basis, annuities allow continued contributions and tax-deferred growth. There is no IRS limit on the amount you can put into a non tax-qualified annuity.

Will you need the money before you reach age 59½?
Annuities are designed to be retirement vehicles. Therefore, if you take out your funds before age 59½ the IRS may subject you to a 10% early withdrawal penalty in addition to any applicable ordinary income tax. Contractual withdrawal charges may also apply.

Do you expect to be in a lower tax bracket after you retire?
When you are older you are likely to be in a lower tax bracket, which makes deferring taxes until you actually withdraw the funds all the more advantageous.

*The guarantees in an annuity are backed solely by the claims-paying ability of the issuing company.

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Understand How Annuities Work

The easiest way to understand annuities is to think of them as the opposite of life insurance. Annuities pay when you are alive; life insurance pays when you die. More formally, an annuity is a contract between an individual and the insurance company. In exchange for either a single deposit or a series of deposits you make into your annuity, the insurance company promises to make a series of payments to you out of the annuity — payments you can use to supplement your income after you retire.

The earnings in annuities accumulate on a tax-deferred basis and then, at some date in the future, you begin to receive payments, either a lump sum or at regular intervals, monthly, quarterly, bi-annually, annually, for a specified period of time, usually between 5 to 30 years — or — for life.

Determine Your Priorities

While tax deferral makes annuities attractive, they may not necessarily be your first course of action. You may want to consider annuities after you have fully funded your employer's (tax-qualified) retirement plan such as a: 401(k), SEP, or SIMPLE IRA or your own IRA for the year. These plans use pretax money and are generally the first step in establishing your long-term retirement strategy. *

Here are a few rules of thumb:

• If you have additional funds to invest, annuities — along with other investments such as mutual funds, bonds, and stocks — may be an option. All of these can be present in a well-rounded retirement strategy.
  
  
• If you need immediate access to your money, deferred annuities may not be the best option since they are generally considered a long-term investment product. However, if you have extra liquidity and a long-term savings goal, the benefits of tax-deferred growth could make a deferred annuity an excellent choice.
  
  
• If you need a steady stream of income, you may want to consider an income annuity.

*Tax-qualified plans (like a 401(k), SEP IRA and SIMPLE IRA) already provide tax deferral under the Internal Revenue Code, so the tax deferral of an annuity does not provide any additional benefits. Also, variable annuities are subject to additional fees to which other tax-qualified plan funding vehicles may not be subject.

When Selecting Annuities

Check Out the Annuity Charges and Fees Before Buying

To receive the benefit of tax-deferred growth in deferred annuities, you may have to sacrifice some liquidity, in the form of potential penalties from the IRS for early withdrawals and withdrawal charges or other fees from the insurance company for canceling the annuity contract or withdrawing funds within a certain number of years.

The IRS can impose a penalty of 10% for withdrawals made before age 59½. Withdrawal charges for most annuities can start at 7% for the first year and decline by 1% each year until they disappear, usually after year eight. These charges serve to underscore the long-term nature of deferred annuities, whether variable or fixed. There are annuity contracts that do allow you to withdraw 10% annually without incurring any withdrawal charges, so be sure to check the contract or prospectus before making any withdrawals from an annuity.

Some annuities may have a front-load fee (fees subtracted from your annuity when you first purchase the contract) or yearly maintenance fees. Make sure you are aware of all the fees associated with an annuity before making any purchase.

Consider the Reputation and the Quality of the Company

Annuities are only as good as the company that backs them. You want to know for certain that the company that issues your annuity will be around to make payments. There are several ratings agencies that rate insurance companies on the quality of their fiscal fitness, quality of investments, and overall financial soundness. A credit rating represents an independent assessment of the insurer's ability to pay its claims on time and meet all its other financial obligations, the bottom line for any life insurance company. There are four leading agencies: A.M. Best Company, Fitch Ratings, Moody's Investors Service and Standard & Poor's.

The guarantees in an annuity are backed solely by the claims-paying ability of the insurance company, and should be a key consideration in making your purchase decision.

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Annuity Income Plan Options

When you're ready to begin receiving income from your annuity, how much income you will receive depends on how much you put into the annuity and your age when the income phase begins — the basic logic being the older you are, the shorter your remaining life expectancy, therefore the larger the amount of income. The amount also depends on your sex, current interest rates and the income plan you select. Here are some of the general income plan options:

Note: Not all income plans are available in all types of annuities. Please review the annuity contract or prospectus or consult your financial representative for further details.

Lifetime or Period Certain

When the time comes to draw an income from your annuity, determine how long you will need it to last.

• Lifetime: If your priority is to always have a steady stream of income that you can't outlive, you'll want to choose a lifetime option.
  
  
• Period Certain: Perhaps you only want to supplement your income for a limited period of time such as might be the case during your early retirement years when you expect to be more active. Or, perhaps you need to provide income before a pension or social security begins — if so, you may want to take payout from your annuity for a specific period (period certain) of time typically ranging anywhere from 5 to 20 years.

Single or Joint & Survivor (Lifetime Plans)

You also need to determine whether you will be the sole annuitant, if you will have a joint annuitant, and if you would like to name a beneficiary:

• Single Life: Pays an income to a single annuitant as long as the annuitant is alive, and stops when the annuitant dies. This option allows for the largest income amount because it is based on the life of only one person, but may not be the best choice if it will leave a surviving spouse in need of income.
  
  
• Single Life with Period Certain: Income is paid as long as the sole annuitant is alive, but if the annuitant dies within the period certain, typically set between 5 and 20 years, the income will continue to a beneficiary, but only for the remainder of the period certain.
  
  
• Joint Life & Survivor: This plan pays an income to joint annuitants, as long as one is alive. When one dies, income continues to the survivor, but may be reduced, depending on the terms of the contract.
  
  
• Joint Life & Survivor with Period Certain: Income is paid as long as either joint annuitant is alive, but if both annuitants die within the period certain, typically set between 5 and 20 years, the income will continue to their beneficiary, but only for the remainder of the period certain.

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Our Annuities

Select Variable Annuity
Select Fixed Annuities
Select Income Annuities
Variable Income Plan (available from the Select Variable Annuity)

Learn more about deferred annuities and income annuities.

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