How do annuities work as part of a financial plan?
Whatever you dream of when it comes to retirement, making sure you'll have the money to make it happen is an important part of your financial plan. These days, fewer and fewer companies are offering pensions, and the future of Social Security is uncertain. So now, more than ever, people have to rely on themselves to plan for their finances in retirement. A fixed or variable deferred annuity can be a smart way to keep your retirement goals on track by letting you save and grow your money, tax deferred, over and above what you can save by maxing out your contributions to your 401(k) or IRA.
Annuities are more affordable than many people think.
Like with all financial products, annuities do come with some costs. But there are also some big benefits. Depending on the type of annuity you purchase, you can have tax deferment, a minimum death benefit, and/or guaranteed income for life.
You won't lose your money if you pass away sooner than expected.
Many fixed and variable annuities come with a death benefit feature to make sure your loved ones will get back at least what you've put into your annuity if you pass away before your income payments start.
It's never too early or too late to start planning for the future.
A fixed or variable annuity can be a great way to save money for the future and let it grow, tax deferred. With a fixed annuity, you can get guaranteed growth.1 With a variable annuity, you can invest your savings.2 Either is a great option when it comes to rolling over a workplace retirement plan or if you've maxed out your 401(k) or IRA contributions.
Questions about fixed and variable annuities? We've got answers.
Fixed and variable deferred annuities are a great option for anyone who wants to grow their savings as they plan for retirement. Fixed annuities could be a good fit for someone approximately 5–10 years away from retirement who wants a safe way to grow their money without the risk of losing their initial investment. Variable annuities, on the other hand, can be a smart move for someone in that stage as well, but also for younger people since there are a range of sub-account options for varying risk tolerances. Connect with an advisor.
With the responsibility of planning for our own retirements, saving in a 401(k) and taking advantage of employer match is a smart move. But both 401(k)s and IRAs have caps on how much you can contribute annually. So an annuity gives you another place to save for retirement, but one with no limit on non-qualified contributions. Connect with an advisor.
Variable annuities are long-term investments and are a way to save money for retirement, tax deferred, like with an IRA or a 401(k). They have multiple investment sub-account options which you can choose from. There are no limits on non-qualified contributions, so when you take money out down the road, only your earnings are taxed as income. When you're ready to start using the money your annuity has accumulated, you'll have the option to convert your annuity into variable (non-guaranteed) or guaranteed income for life or to take your money out as one lump sum. Find out more about how variable annuities work.
Fixed annuities are a way to save money for retirement, tax deferred, like with an IRA or a 401(k), and they pay a guaranteed minimum rate of return.1 There are no investment options with fixed annuities, but they pay a guaranteed minimum rate of return and provide fixed payments under the conditions you choose when you buy the annuity. There are no limits on non-qualified contributions, and when you take money out down the road, only your earnings are taxed as income. When you 're ready to start using the money your annuity has accumulated, you'll have the option to convert your annuity into guaranteed income for life or to take your money out as one lump sum. Find out more about the different types of annuities.
Variable annuities are considered investments and carry investment risk. With a variable annuity, your premiums are invested in a variety of sub-account options of your choosing, and the annuity's rate of return is based on the performance of those subaccounts. Variable annuity rates are not guaranteed, and they have the potential to bring you higher returns than a fixed annuity would. However, variable annuities might go down in value (based on the performance of the sub-accounts), but fixed annuities will not. Fixed annuities are not considered investments. Find out more about annuities as investments.
If you think of fixed annuities and variable annuities as two ends of a spectrum, there are other types of annuities that fall somewhere in the middle and include features of both fixed and variable annuities. An indexed annuity is one of them, providing both upside potential (like with variable annuities) and downside protection through a guaranteed minimum rate of return (like with fixed annuities). Indexed annuities are a bit more complicated and typically have less attractive features like long surrender periods and less true market participation.
Fixed annuities often have higher minimum premiums and are generally funded with a single payment. Variable annuities generally have lower premiums and can be funded with a single payment or ongoing contributions. The actual dollar amount you pay depends on your personal goals and situation.
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Option to convert to an income plan at retirement to receive income payments for life
A guaranteed death benefit following the death of the owner of the annuity*
Multiple investment sub-account options that are managed by dedicated and experienced professionals**
Variable investments that can provide the potential to keep pace with inflation***
Tax-free, cost-free transfers of assets between available investment sub-accounts****
*Variable Annuities are sold by prospectus only. Clients should carefully consider the investment objectives, risks, expenses and charges of the investment company before they invest. A Northwestern Mutual Investment Services Registered Representative can provide clients with a contract and sub-account prospectus that will contain the information noted above and other important information that clients should read carefully before they invest or send money.
**The performance of variable sub-accounts is not guaranteed, and variable annuities are subject to market risk, including loss of principal. No investment strategy can guarantee a profit or protect against a loss.
***Variable annuities are subject to fees and charges, such as mortality and expense charges, annual contract fees, sales charges, and portfolio expense fees associated with the underlying investment options.
****Please refer to the Prospectus for details of all fees and charges.
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