Variable & Fixed Annuities

When deciding if a variable annuity is right for you, be sure to consider it in light of your stage in life, goals, and financial circumstances.

 


What is a variable annuity?
A variable annuity is a contract between you and an insurance company, under which the insurer agrees to make periodic payments to you, either immediately or at some future date. A variable annuity combines features of an investment product, which can provide growth potential, and inflation protection, and an insurance contract, which can give you access to certain income, death benefit and wealth protection guarantees, and are recommended for individuals who want to save more for retirement and have already maximized their qualified plan

Why would I want one?
In addition to flexibility, a variable annuity provides features and benefits not necessarily found in other investment vehicles. There are three distinct benefits an annuity offers that other financial vehicles may not:

n  Guaranteed Retirement Payments
A contract sold by an insurance company designed to provide payments to the holder at specified intervals, usually after retirement. The holder is taxed only when they start taking distributions or if they withdraw funds from the account. 

n Guaranteed Death Benefit
An annuity has a death benefit equivalent to the higher of the current value of the annuity or the amount the buyer has paid into it. If the owner dies during the accumulation phase, his or her heirs will receive the accumulated amount in the annuity. This money is subject to ordinary income taxes in addition to estate taxes.

n  Tax Deferral
All annuities are tax-deferred, meaning that the earnings from investments in these accounts grow tax-deferred until withdrawal. Annuity earnings are also tax-deferred so they cannot be withdrawn without penalty until a certain specified age. Fixed annuities guarantee a certain payment amount, while variable annuities do not, but do have the potential for greater returns. Both are relatively safe, low-yielding investments. 

n  You have the flexibility to tailor your investment strategy to meet your needs, even if those needs change over time and you can choose from a variety of diverse portfolio options offered by professional asset managers.  You can also make transfers between investment portfolios inside the annuity without incurring current income taxes or costs.

 

    
What is a fixed annuity?
A fixed annuity is a financial product issued by an insurance company. It minimizes tax liability, while allowing tax-deferred growth of assets. At retirement, a fixed annuity can provide a guaranteed income stream for one or more people, in specified amounts, for a specified period or for life.

There are basically two types of fixed annuities:

A fixed deferred annuity may be purchased with a lump sum (single premium), or through a series of premiums. Each premium earns a guaranteed interest rate for a specified period - usually one, three, five or six years.

An immediate annuity is purchased, generally at or near retirement, by lump sum and is immediately converted into a series of income checks paid monthly, quarterly, semi-annually or annually. Income payout is based on a guaranteed, fixed interest rate.  

Why would I want one? Because you want a financial product with predictable growth and stable performance with no stock market volatility. You want a secure retirement income that is not dependent upon circumstances beyond your control. You know that Social Security alone might not provide the retirement income you'll need to maintain your standard of living or cover your monthly expenses. Your employer-sponsored retirement plan could miss the mark as well. A fixed annuity may help fill the resulting income gap.

n   Fixed annuities appeal to those seeking to defer tax liabilities;

n   Who want to offset or avoid the risk and uncertainty of stock market based investments, such as individual stocks or mutual funds.

n   Fixed annuities also offer a way to preserve a rollover from an employer-sponsored retirement plan and lock in a guaranteed interest rate.  

n    What's more, by offering simplified asset transfer to your named beneficiary upon your death, an annuity can eliminate the inconvenience and cost of probate

 

Note: With a variable annuity, you benefit with higher periodic payments when your investments within the sub-account perform beyond expectation.
However, if your investments perform poorly or lose value, your returns will also suffer and can lose value.  One important point to keep in mind is
that with a variable annuity, you bear the risk.  

Remember:  Variable annuities are designed to be long-term investments,  to meet retirement and other long-range goals. Variable annuities are not suitable for meeting short-term goals because substantial taxes and insurance company charges may apply if you withdraw your money early. For your protection, please take time to review more information on variable annuities offered by the
SEC at http://www.sec.gov/investor/pubs/varannty.htm

Disclosures: * The information on this page is for informational purposes only and does not constitute, and should not be construed as, professional, legal or tax advice.
To determine your individual tax situation and specific needs, please consult a professional tax advisor. * Information contained in these sections merely highlight some benefits.  There are risks involved with all investments that could include tax penalties and risk/loss of principal.

Ohanesian / Lecours
 Member Financial Industry Regulatory Authority (FINRA) www.finra.org
and Securities Investor Protection Corporation (SIPC). www.sipc.org

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Last modified: August 25, 2009