RETIREMENT INCOME DESERVES A PLAN YOU UNDERSTAND.
Retirement can create new questions about income, protection, access to money, and how long your resources may need to last. Certain insurance products, including annuities, may provide features designed to help address some of those concerns.
Ike can help you understand how insurance-based retirement solutions work, what they may provide, what they may cost, and what tradeoffs should be reviewed before making a decision.
Retirement Is About More Than Reaching a Date.
Retirement planning can involve several different questions. Insurance may address some of them, but no single product solves every retirement need.
Income
How will you create income to help support ongoing expenses?
Longevity
How long may your retirement resources need to last?
Market Exposure
How comfortable are you with fluctuations in the value of money intended for retirement?
Liquidity
How much money may you need to access without restrictions or surrender charges?
Legacy
Do you want remaining assets or insurance benefits to pass to beneficiaries?
Guarantees
Which contract guarantees matter to you, and what conditions must be satisfied?
What Is an Annuity?
An annuity is an insurance contract issued by an insurance company. Depending on the contract, an annuity may be designed to accumulate value, provide retirement income, or offer a combination of insurance features.
Annuities can differ significantly in how premiums are paid, how value accumulates, when income begins, what guarantees apply, what charges may be assessed, and how money can be accessed.
An Annuity Is an Insurance Contract.
It is important to understand the actual contract rather than evaluating an annuity by one advertised feature.
Annuities May Involve Two Different Phases.
Phase 1 — Accumulation
During an accumulation period, the contract may build value according to its terms before income payments begin.
Phase 2 — Income
Depending on the contract and options selected, the owner may later take withdrawals or elect an available income option.
Not every annuity is designed primarily for accumulation, and not every owner chooses to annuitize a contract.
When Do You Want Income to Begin?
Deferred Annuity
Generally designed so income begins at a future date. The contract may have an accumulation period before income is taken.
Immediate Annuity
Generally purchased with a premium in exchange for income payments that begin within a relatively short period, according to the contract.
The appropriate structure depends on goals, timing, liquidity needs, available assets, and the specific contract.
How Can a Fixed Annuity Work?
A fixed annuity may credit interest according to rates and guarantees described in the insurance contract.
- Current credited rates may apply for specified periods
- Guaranteed minimum provisions may differ from current credited rates
- Contract terms vary by insurance company
- Withdrawals may be subject to surrender charges or other provisions
- Income options may be available depending on the contract
Current credited rates should not be confused with contractual minimum guarantees.
What Is a Fixed Indexed Annuity?
A fixed indexed annuity is an insurance contract in which credited interest may be determined in part by the performance of an external market index using methods defined by the contract.
The contract owner is not directly invested in the index.
Interest-crediting methods may include features such as participation rates, caps, spreads, or other contract provisions. These features can affect the amount of interest credited.
An index increasing does not mean the annuity will receive the full percentage increase of that index.
Contract values, guarantees, crediting methods, and withdrawal provisions vary by insurance company and product.
Other types of annuities also exist and may involve different insurance or securities features.
What Does “Protection” Actually Mean?
Certain fixed insurance products may include contractual features designed to protect contract value from direct declines caused solely by negative performance of an external market index.
However, contract value may still be affected by withdrawals, surrender charges, fees, rider charges, taxes, and other contract provisions.
Protection features and guarantees vary by insurance company and contract.
Understand What Is Actually Guaranteed.
Annuity guarantees are contractual promises made by the issuing insurance company and are subject to the terms of the contract.
Guarantees depend on the financial strength and claims-paying ability of the issuing insurance company.
- Minimum guaranteed values
- Guaranteed income provisions, if applicable
- Contractual death benefits, if applicable
- Income-base or rider guarantees, if applicable
- Conditions required to maintain guarantees
- Rider requirements
- Premium requirements
- Withdrawal limitations
Not every contract includes the same guarantees.
Annuities Are Insurance Products — Not Bank Deposits.
Annuities are issued by insurance companies. They are not bank deposits and are not FDIC-insured.
Can an Annuity Provide Retirement Income?
Depending on the contract, annuities may provide different ways to receive income.
- Systematic withdrawals
- Contractual income riders, if included
- Annuitization options
- Income for a specified period
- Certain lifetime-income options
Some annuity options can provide income that continues for life, subject to the selected payout option, contract terms, and the claims-paying ability of the issuing insurance company.
What Is an Income Rider?
Some annuity contracts may offer optional riders designed to provide specified income features.
Riders may have additional charges, eligibility requirements, withdrawal rules, or other conditions.
Income Benefit Base vs. Cash / Contract Value
An income-benefit base used to calculate certain rider benefits may not be the same as the amount available for a lump-sum withdrawal.
How Much Access Do You Need to Your Money?
Liquidity is one of the most important considerations when evaluating an annuity.
An annuity may limit how much can be withdrawn without surrender charges during a specified period.
- Surrender-charge period
- Free-withdrawal provisions, if available
- Required minimum distributions, when applicable
- Income withdrawals
- Emergency liquidity needs
- Other available assets
- Contract exceptions or waivers, if any
Withdrawal provisions vary by contract.
Understand the Surrender Period Before You Buy.
Many deferred annuities may impose surrender or withdrawal charges when more than an available penalty-free amount is withdrawn during a specified contract period.
Charges and surrender periods vary by insurance company and contract.
Before purchasing an annuity, understand how long restrictions apply and whether you may need access to that money during the surrender period.
Money needed for short-term expenses may not be appropriate for a long surrender period.
What Does Tax-Deferred Mean?
Earnings inside an annuity generally grow tax-deferred under current federal tax rules, meaning income tax on those earnings is generally deferred until taxable amounts are distributed.
Tax-deferred does not mean tax-free.
Tax treatment can depend on how an annuity is funded, how distributions are taken, the owner's age, and individual tax circumstances.
For questions about individual tax consequences, consult an appropriate qualified tax professional.
What If the Money Is Already in an IRA or Retirement Plan?
Traditional qualified retirement accounts generally already receive tax-deferred treatment.
Purchasing an annuity inside a tax-deferred retirement account does not create an additional tax-deferral benefit by itself.
An annuity may still be considered for other contract features, such as income options, insurance guarantees, or death-benefit provisions, depending on the individual situation and specific contract.
Withdrawals May Have Tax Consequences.
Taxable distributions from an annuity may be subject to income tax, and certain distributions before age 59½ may also be subject to an additional federal tax unless an exception applies.
Tax rules vary by situation.
Consult an appropriate qualified tax professional regarding your individual circumstances.
What Happens to the Contract If I Die?
Annuity death-benefit provisions vary by insurance company and contract.
Depending on the contract and whether income payments have begun, a beneficiary may receive a contractual death benefit or remaining value according to the contract terms.
Income elections can also affect what, if anything, remains for beneficiaries.
- Beneficiary designation
- Contract death-benefit provision
- Income option selected
- Joint or survivor provisions, if applicable
- Rider provisions
- Tax considerations
Income Options Involve Tradeoffs.
Life Only
May provide income for the annuitant's lifetime, but payments generally stop at death according to the contract.
Period Certain
May provide payments for a specified minimum period according to the selected option.
Joint / Survivor
May provide income based on the lives of two covered individuals according to the contract.
Other Options
Additional payout choices may be available depending on the insurance company and contract.
Selecting an income option can be difficult or impossible to reverse after annuitization, depending on the contract.
An Annuity and an Investment Account Are Not the Same Thing.
An annuity is an insurance contract.
Traditional investment accounts may provide different liquidity, market exposure, tax treatment, costs, ownership rights, and investment choices.
One is not automatically better than the other. They serve different purposes.
An Annuity Does Not Have to Be an All-or-Nothing Decision.
Consumers may have different needs for income, liquidity, emergency reserves, growth, legacy planning, and protection.
An annuity should be evaluated in the context of the consumer's overall financial situation and the specific purpose the contract is intended to address.
The Right Questions Matter Before an Annuity Decision.
- Age
- Retirement goals
- Income needs
- Existing income sources
- Liquidity needs
- Emergency reserves
- Time horizon
- Existing annuity contracts
- Existing insurance
- Tax status of the funds
- Beneficiary goals
- Surrender-charge tolerance
- Need for guarantees
- Expected withdrawals
- Health / longevity considerations where appropriate
- Other financial resources
An annuity recommendation should be based on the consumer's financial situation, insurance needs, objectives, and the features of the particular contract being considered.
Already Own an Annuity?
An existing annuity may still meet your needs. Before making changes, understand what you already own.
- Current contract value
- Surrender value
- Remaining surrender period
- Guaranteed interest provisions
- Current credited rate, if applicable
- Riders
- Income benefits
- Death benefit
- Beneficiaries
- Withdrawal provisions
- Tax status
- Existing guarantees
Don't Surrender or Replace an Existing Annuity Too Quickly.
Replacing, surrendering, or exchanging an existing annuity can have important financial, contractual, and tax consequences.
- New surrender-charge period
- Loss of existing guarantees
- Loss of rider benefits
- Surrender charges
- Changes in income benefits
- Changes in death benefits
- Tax consequences
- New contract provisions
Understand both the existing contract and the proposed new contract before making a change.
Certain exchanges may qualify for tax-deferred treatment under federal tax rules when specific requirements are met. Consult an appropriate qualified tax professional regarding your circumstances.
Read the Contract After Delivery.
Annuity contracts may provide a right-to-review or “free-look” period according to applicable state law and contract terms.
Review the actual contract, disclosures, riders, surrender provisions, guarantees, and beneficiary information during the applicable review period.
State requirements vary.
Questions Worth Asking Before You Buy an Annuity
- What problem am I trying to solve?
- Is this immediate or deferred?
- How does the contract credit interest?
- What is guaranteed?
- What is not guaranteed?
- What charges apply?
- How long is the surrender period?
- How much can I withdraw?
- What happens if I need more money?
- How are income benefits calculated?
- Is an income-benefit base different from cash value?
- What happens when I die?
- Are riders optional?
- What do riders cost?
- How does this compare with the annuity I already own?
- What would cause me to lose a guarantee?
Annuity Decisions Involve Tradeoffs.
Income
Guarantees
Liquidity
Legacy
Understand the Contract Before You Commit.
As an independent licensed insurance broker, Ike can help you understand available annuity and insurance-based retirement options from insurance companies he represents.
Goal Review
Start with what you want the money or income to accomplish.
Contract Education
Understand guarantees, charges, liquidity, income options, and important limitations.
Comparison
Review appropriate available insurance options rather than focusing on one advertised feature.
Existing Contract Review
Understand what you already own before considering a replacement or exchange.
Ongoing Support
Know who to contact when questions arise about your insurance contract.
No Pressure
Educational guidance with no obligation to purchase anything.
A Simple Way to Review Retirement Insurance Options
Identify the Goal
Income, protection, accumulation, legacy, or another insurance need.
Review Your Situation
Consider liquidity, existing resources, time horizon, retirement income, and current contracts.
Understand the Contract
Review guarantees, charges, withdrawal provisions, income options, and limitations.
Make an Informed Decision
Determine whether the insurance solution fits the need it is intended to address.
Availability, guarantees, rates, riders, benefits, and contract terms vary by insurance company and product.
Ready to Better Understand Your Retirement Options?
Tell Ike what you want your retirement resources or insurance coverage to accomplish. He can help you understand available insurance-based retirement options and the contract features worth reviewing.
Frequently Asked Questions
An annuity is an insurance contract issued by an insurance company. Depending on the contract, it may be designed to accumulate value, provide retirement income, or offer a combination of insurance features.
Request Your Personal Consultation
Tell Ike what you want your retirement resources to accomplish. You will receive clear, personal guidance with no sales pressure.
Request Your Personal Consultation
Tell Ike about your situation. You will receive clear, personal guidance with no sales pressure.