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Today’s retirement is so different from what prior generations experienced. Our potential to live longer has increased significantly and that means our money must also last a lifetime.

An annuity is a unique tax-deferred financial vehicle in its ability to provide guaranteed lifetime income and a legacy. It may be a good way for you to plan for a long and enjoyable retirement.

The Benefits of Owning an Annuity

Like all financial products, annuities have associated fees or charges. These can include administrative fees, management fees, mortality and expense risk charges, sales charges, and withdrawal charges. Optional living benefits and death benefits may also be available for an additional cost.

Fees and Charges

Ratings and Financial Strength

Since the guarantee provided by an annuity is only as strong as the insurance company that issues it, financial strength and ratings are very important. You’ll want to make sure that the company is financially secure. Rating agencies such as A.M. Best, Standard & Poor’s, and Moody’s all rate the financial strength of insurance companies.*

*Ratings apply to fixed accounts, death benefits, and annuity income payment guarantees.

Most annuities have a feature that provides protection for your beneficiaries, and with all annuities you can avoid probate. Upon your death, your designated beneficiaries will receive the greater of two values:

  • The contract account value

  • Or the amount you contributed to the annuity (adjusted for any prior withdrawals)

With a variable annuity, you may also be able to elect extra death benefits for an additional cost

Planning for Your Beneficiaries

  • income for life
  • income for a specific period
  • joint and survivor life

When you are ready to start withdrawing income from your deferred annuity, you can:

  • Take a lump sum payment

  • Take a stream of periodic payments (this is called annuitizing).With annuitization, you stop making any additional payments. Payouts start and can continue for as long as you live, or for a fixed period. Some payout options will continue payment to a beneficiary after your death. Common payout options include:

  • Or you can take partial withdrawals of the contract value. Annuities that provide guaranteed income for life enable you to take guaranteed lifetime withdrawals without annuitizing your contract. Withdrawals will be subject to income taxes, and if made before age 591⁄2, a federal income tax penalty as well. The contract also may impose withdrawal charges.

Receiving Income from Your Annuity

  • You can basically put as much money as you like into an annuity (with a few restrictions). All earnings from annuities are taxed as ordinary income when you withdraw the money.

  • An annuity can also be used to fund an IRA, SEP, 401(k), or 403(b). If you use an annuity to do this, there would be contribution limits that apply (based on IRS requirements). Also, U.S. federal tax laws generally require that you begin taking minimum distributions when you reach age 70 1⁄2.

There is no additional tax-deferral benefit for contracts purchased in an IRA, since these plans are already afforded tax-deferred status. Thus, an annuity should be purchased in an IRA only if you value some of the other features of the annuity and are willing to incur any additional costs associated with the annuity to receive such benefits.

How Much Can You Put in

  • Purchased with multiple purchase payments, allowing you to add to your annuity later.

How Your Make Payments

  • You can put money in with a single payment or flexible payments.

  • The payment of income you receive is deferred while your money has the opportunity to grow without being taxed (tax-deferred).

When Your Take Income

Traditional Fixed Annuity

When purchasing an annuity, you can choose a payment method—whether to fund it with a single payment or multiple payments

Flexible Premium Annuity

  • Purchased with a single lump-sum payment. You cannot add additional money later on.

Single Premium Annuity

Deferred Annuity

Immediate Annuity

  • Purchased with a single payment. You cannot add additional money to your annuity later on.

  • It starts providing you with income payments right away. You determine the payout plan—monthly, quarterly, semi-annually, or annually.

  • You pay taxes on the earnings portion of each payment you receive.

Annuities are also categorized based on when you take income, immediate or deferred, and how you make payments, single premium or flexible premium.

Types of Annuities - by Income and Payments

  • Provides a fixed rate of return at a rate determined by the insurance company. This rate is guaranteed for a certain period of time


  • Represents a conservative retirement asset, along with CDs. Unlike a typical CD, however, an annuity can provide a guaranteed income for life. Another important distinction is that an annuity is not insured by the Federal Deposit Insurance Corporation(FDIC); its guarantee is directly related to the financial health of the insurance company that issues it.

  • Offers the security of knowing that your payment is growing at a predictable rate.

A fixed annuity is attractive when you are interested in safety and preserving money, rather than taking on market risk.

Some annuities also offer principal guarantees and can provide guaranteed income for life

What is an annuity? Annuities are long-term financial vehicles that allow you to accumulate money tax deferred for retirement. Annuities also allow you to create a steady stream of income to live on in retirement.

An annuity is basically a contract between you and an insurance company whereby the insurance company makes a series of income payments to you in exchange for premiums you have paid. While the purpose of life insurance is primarily to protect your beneficiaries, an annuity is designed to help you accumulate money for your future income needs and to protect you by providing you with an income stream that you cannot outlive.

Types of Annuities – general overview