Variable, Deferred
Annuities

What is a variable, deferred annuity?

A variable, deferred annuity is a long-term insurance product that enables the premium paid to the insurance company to accumulate tax-deferred with a variable rate of return. Within the annuity, there is a choice of investment options (called sub-accounts) that will allow for management of investment choices over time. The sub-accounts invest in underlying funds that, in turn, invest in various types of securities (i.e.,stocks, bonds, money market instruments) each with a different risk/return profile. The return on your annuity will depend on the performance of the investment options you choose.

Example
Caity Jones, 54, makes the maximum contribution to her 401(k) plan at work each year and also has an IRA to which she contributes the maximum annual amount. This year, she receives a bonus for which she doesn't have an immediate need. She decides she would like to invest $15,000 of her bonus and let the earnings accumulate on a tax-deferred basis. Knowing that Caity is financially savvy and is a moderately aggressive investor, her financial advisor suggests a variable, deferred annuity with a mix of equity and bond investment options. Caity is willing to take the risk of either profiting or losing from this investment.

What are the advantages of a variable, deferred annuity?

• Tax-deferred accumulation
• Ability to choose among investment options
• Potential for more rapid accumulation than with a fixed annuity.

What are the disadvantages of a variable, deferred annuity?

• No guaranteed rate of return on variable investment options
• No guarantee of principal
• 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.
• Subject to fees and charges from the annuity contract and from the underlying investments.

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

A variable, deferred annuity can be a suitable investment for someone:

• Who does not require a fixed rate of return and with a tolerance for risk
• Who has already reached maximum contribution levels in his or her 401(k) plan and in any IRAs
• Who likes to manage their own investments
  
  

May one make withdrawals from a variable, deferred annuity?

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

• Surrender charges

On many annuities, the insurer may assess a surrender charge -- typically ranging from 7% to 1% 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.

• Federal income tax penalties

• Withdrawals before age 59 1/2 may be subject to a 10 percent Federal Income Tax penalty.

When speaking with your financial consultant, ask if any of these apply with the annuity you are considering.

What pay-out options are available when I get ready to receive income from my annuity?

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