Fixed, Deferred
Annuities

What is a fixed, deferred annuity?

A fixed, deferred annuity is an insurance product that offers a fixed interest rate guaranteed* by an insurance company for a specified period of time (sometimes called a guarantee period ). With this form of retirement savings, the premium you pay to the insurance company accumulates on a tax-deferred basis and the insurance company usually guarantees* the return of your principal investment.

Example
Mr. and Mrs. Johnson, both in their mid 50's, have received a $40,000 inheritance and would like to use this money for their retirement income later on. Their financial advisor has explained that an annuity may be a suitable product for them. The Johnson’s have a very low risk tolerance and they will need this money for their retirement. They decide that a fixed, deferred annuity is perfect for them because they do not need the money right now and they do not want to risk losing their principal investment.
 
What are the advantages of a fixed, deferred annuity?

• Tax-deferred accumulation
• Guaranteed return of principal*
• Guaranteed interest rate*
• Choice of guarantee period with many fixed annuities
• Not subject to stock and bond market fluctuations
• No fees or charges with many fixed annuities.

* Guarantees are based on the claims-paying ability of the insurer.

What are the disadvantages of a fixed, deferred annuity?

• No flexibility. You may not change any applicable guarantee period or interest rate once you pay your premium.
• Not a liquid investment. Liquidation of earnings is subject to ordinary income tax and, if taken prior to age 59 1/2, a 10% federal income tax penalty may also apply. Early surrender charges may also apply.

For what type of investor is a fixed, deferred annuity suitable?

It may be a suitable investment for someone:

• Seeking a fixed rate of return
• Wishing to diversify their overall retirement investment portfolio
• Who has already reached maximum contribution levels in a 401(k) plan and any IRAs they may have.
• Not wanting to worry about market fluctuations or having to actively manage their investments.

May one make withdrawals from a fixed, deferred annuity?

Certain withdrawals from fixed, deferred annuities may be subject to:

• Surrender charges

   On many annuities, the insurer may assess a surrender charge -- typically ranging from 7 percent to 1 percent of the withdrawal amount, based on a schedule where the amount of the surrender charge declines over time. There are some exceptions. Some annuities allow the annuitant to annually withdraw a certain amount (for example 10%) without a surrender charge.

• Market value adjustments

   Some fixed annuities contain a market value adjustment that applies when you take a full or partial distribution. With some types of fixed annuities, the market value adjustment may increase or decrease the value of your distribution, depending whether the interest rates currently being offered for your type of annuity have risen or fallen since your guarantee period began. If they've fallen, the adjustment may result in a higher payment. If they've risen, your payment may be lower. With some types of annuities, there is no market value adjustment if you surrender your annuity at the end of a guarantee period.

• Federal income tax penalties

Withdrawals before age 59 1/2 may be subject to a 10 percent Federal Income Tax penalty. Ask your financial consultant if any of these apply with the annuity you are considering.

• Pay-out options available

Most annuities offer several standard pay-out options - ranging from pay-outs for a specified period of time (Period Certain), to pay-outs for life.