Guaranteed Annuities offer two important features of a sound retirement savings plan-relative security and predictability-with the ability of tax deferral. Your investment earns competitive tax-deferred interest guaranteed by the issuing insurance company. By annuitizing, you may enjoy a lifetime income. There may be a 10% tax penalty for withdrawals before age 59 ½. Penalties may apply for withdrawals during the surrender period. The risk associated with a guaranteed annuity is that you will earn no more than the minimum guaranteed interest. Guarantees are based on the claims paying ability of the insurance company.
Traditional
Conservative investors who are more interested in protecting the principal of their investment and receiving a competitive fixed rate of return may be more comfortable with the safety offered by a traditional fixed-dollar annuity. With a deferred fixed annuity, you lock in an interest rate for an initial period, normally one to three years. When the period ends, the insurance company designates a new rate of return for the succeeding period. Most deferred fixed annuities have a minimum guaranteed rate that will be paid regardless of economic conditions.
Total Return
If you are seeking reduced risk but still want the potential for high total return on your investment, you may want to consider a Total Return fixed annuity. These types of annuity products obtain a total return from a flexible combination of current income and capital appreciation, along with the preservation of capital over the long-term using a multi-asset approach. Total Return Annuities maintain a diversified portfolio that includes stocks, bonds and money market instruments. This approach can reduce the risk of loss due to the decline of one portion of the portfolio. There may be a 10% tax penalty for withdrawals before age 59 ½. Penalties may apply for withdrawals during the surrender period. The risk associated with a guaranteed annuity is that you will earn no more than the minimum guaranteed interest. Guarantees are based on the claims paying ability of the insurance company.
Equity Indexed
EIAs offer a minimum guaranteed interest rate combined with an interest rate linked to a market index. EIAs also have the potential to earn returns better than traditional fixed annuities when the stock market is rising, however EIAs are not stock market investments.
The index-linked gain depends on the particular combination of indexing features that an EIA uses. Participation rates are set and limited by the insurance company. So, for example, an 80% participation rate limit means that only 80% of the gain experienced by the index for that year would be credited to the contract holder. If there is no indexed-link interest for that year, EIAs offer a minimum guaranteed interest rate . Like most annuity contracts, EIAs have certain rules, restrictions and expenses, and some insurance companies may change rates and fees annually. To fully understand an EIA, make sure you not only understand each feature, but also how the features work together since these features can dramatically impact the return on your investment.
EIAs are long-term investments. EIAs are not stock market investments. If you surrender your EIA early, you may have to pay a significant surrender charge. As with any withdrawals from tax-deferred annuities before 591/2, a 10% tax penalty will reduce or eliminate any return.
All guarantees are based upon the claims paying ability of the sponsoring insurance companies.
Coverage may vary by state. The contract's prospectus contains information relating to charges, expenses and complete details of coverage. This and other important information is contained in the prospectus. You should read the prospectus carefully before investing.