The Annuity Advantage

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What is an annuity?An annuity is a contract with a life insurance company that provides certain benefits in exchange for a deposit of money, known as a premium. Annuities are not life insurance policies.

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Types of AnnuitiesTraditional Fixed Annuities• Earnings are generally based

on a stated rate, guaranteed for a period of one year.

Multiple-Year Guarantee Annuities•Earnings are generally based on a stated rate, guaranteed for a set number of years.

Fixed Indexed Annuities• Earnings are generally linked to

the performance of external index, like the Nasdaq-100® or S&P 500® index, while providing a minimum guarantee.

Variable Annuities• Earnings are generally based on

investment options, such as stock or equity markets.

• May lose value when the investment option suffers market losses.

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Investment Pyramid

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Stocks and

Derivatives

Variable Annuities and Mutual Funds

CDs, Savings, Fixed Annuities,

Fixed Indexed Annuities

Why an annuity?

• Safety.• Flexibility.• Earnings potential.• Protection.

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From Feature to

Benefit

Feature Benefit

Tax deferral* Triple compounding of interest

Minimum guarantees Safety and security

Beneficiary designation Avoidance of probate**

Annuitization† Guaranteed income

Control Choice and flexibility

Death benefit Leave a legacy

Withdrawal provisions†† Income flexibility

Premium bonuses Offset investment losses

Optional riders Protective solutions

Crediting methods Choice, ability to change based on needs

*Taxes are deferred until withdrawals are taken, and tax deferral is available only to individuals or to entities that benefit individuals, such as certain trusts. Under current law, tax deferral is a basic feature of tax-qualified plans. Placing qualified funds into an annuity does not provide any additional tax benefit.

** The beneficiary must be living at the time the benefit is payable, subject to the terms of the annuity contract. Avoidance of probate can also be a benefit of some non-annuity financial products, such as a paid-on-death account, where a beneficiary is named.

† Requires election of settlement option. See annuity contract for details and restrictions. †† Withdrawals may be subject to income tax and IRS penalty tax if made before age 59½.

Tax Deferral• Feature—Tax Deferral:

– Exists as a function of current law and has no explicit cost.– Allows you to control when you pay taxes on contract gains.

• Benefit—Triple Compounding:– Interest on principal.– Interest on interest.– Interest on dollars that otherwise would have been paid

in taxes.

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Placing qualified money in an annuity does not provide any additional tax deferral benefit.  

Taxes are deferred until withdrawals are taken, and tax deferral is available only to individuals or to entities that benefit individuals, such as certain trusts. Under current law, tax deferral is a basic feature of tax-qualified plans.

Minimum Guarantees• Feature—Minimum Guarantees:

– Contractual minimum guarantee:• A minimum interest rate guarantee that applies

over the life of the contract.– Represents the worst case scenario.

– Current interest rate guarantee:• May be a stated interest rate or multiple-year

guaranteed interest rate.

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Fixed annuities guarantee a minimum interest rate on all or a percentage of each contribution over the life of your contract, less any withdrawals and/or deductions and early surrender charges. Guarantees are based on the claims-paying ability of the insurer.

Minimum Guarantees (cont’d)• Benefit—Safety and Security:

– No market loss.

– Insurance company financials.

– Comparison of FDIC to insurance company safety.

– Guaranty association.

– Protection from market fluctuation.

– Insurance companies invest long term and hold conservative investment portfolios.

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Beneficiary Designation• Feature—Annuities pass to the beneficiary at death:*

­ Spouse listed as sole primary beneficiary:1. Can assume the contract and continue the tax deferral

(spousal continuance).2. Can take over the death proceeds as his or her own IRA

(spousal IRA).**­ Living beneficiaries of IRA:

• Can “stretch” the IRA over their lifetime and potentially multiple generations to reduce tax implications.

• Benefit—Assets can avoid the public, costly, and time-consuming process of probate.

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* Refer to the annuity contract for details regarding qualifying death. ** Not available with all companies.

Annuitization• Feature—A contract provision that allows you to

convert your annuity into a guaranteed income stream:– Can be elected, but does not have to be.– Can provide a variety of settlement options, including:

• Income for life or a joint life.• Period certain (5-20 years).• Combination of the above .

• Benefit—Can help protect you from outliving your income and provide tax-advantaged income on nonqualified monies.

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Refer to specific contract for options available.

Control• Feature—You can control:

– Distribution of death benefit.– When to pay taxes on annuity gains.– Which crediting strategies to choose.– If and when to take income.– Annuity duration.– Premium bonus type and amount.*– Which riders to elect.

• Benefit—a great deal of choice and flexibility.

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* May not be available with all products. Please check with specific insurance companies.

Death Benefit• Feature—Death Benefit:

– Many annuities offer a full-value-at-death provision.*– Some annuities offer a death benefit rider that can offset

the beneficiaries’ federal income tax burden when they inherit the annuity.

– Settlement options are also available to beneficiaries.– The surviving spouse may continue the contract or assume

the decedent’s IRA.**

• Benefit—Helps you leave a legacy and optimize flexibility for your beneficiaries.

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* Refer to specific annuity contract for details.** Subject to limitations and restrictions by the IRS.

Income Now or Income Later• Feature—liquidity provisions:*

– Income now via surrender charge-free withdrawals.**– Income later via annuitization.– May be fully liquid at death.– Liquidity upon confinement.*– “Checkbook” access.**– Optional riders:

• Income riders.• Additional benefit riders.• Death benefit riders.

• Benefit—income flexibility.

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* Varies by product. Refer to annuity contract for specific details and limitations.** Withdrawals may be subject to income tax and IRS penalty tax if made before age 59½.

Premium Bonuses*• Feature—optional bonus available on some

annuities:– A vested bonus can add additional dollars that

you own immediately.• Benefit—Can help offset market losses, increase

annuity value or first-year interest crediting, and generate additional income.

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* Refer to contract for details.

Optional Riders• Feature—optional riders:

– Living benefit riders:• Optional income-for-life riders.• Additional benefit riders (to provide additional money when

certain life events occur).– Death benefit riders:

• Designed to offset beneficiaries’ tax liability on deferred gains.

– Liquidity riders:• Provide additional liquidity.*

• Benefit—income for life, protection from health costs, and minimized tax liability for beneficiaries.

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* May provide liquidity in exchange for a lower interest rate. See contract for details.

Crediting Methods• Features—crediting methods:

– Current interest rate guarantee:• Rates are guaranteed for one year and can vary upon renewal.

– Multi-year guarantee:• Rates are guaranteed for a specific time frame, typically 3, 5, 7,

or 10 years.– Index strategy:

• Gains are linked to an external index, such as S&P 500®.• Gains are credited via a variety of calculation methods, such as annual

reset, point-to-point, monthly average, monthly cap, blended index.

• Benefit—choice, earnings potential, guaranteed rates, or a combination of all three.

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“Standard & Poor’s®”, “S&P®”, “S&P 500®”, “Standard & Poor’s 500” and “500” are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by the issuing insurance carrier. The Product is not sponsored, endorsed, sold or promoted by Standard & Poor’s and Standard & Poor’s makes no representation regarding the advisability of purchasing the Product.

CDs Compared With Fixed AnnuitiesCDs• Interest is taxable.• Historically low rates.• Often limited liquidity.• Subject to probate.• Can be subject to creditors.

Annuities• Tax deferred.*• Upside potential.• 10% surrender charge-free

withdrawals with “checkbook.”**• Not subject to probate.†

• May not be subject to creditors.††

• Additional protective solutions available via riders.§

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Based on general understanding of the basic features of CDs and fixed annuities; current features and benefits may vary. * Taxes are deferred until withdrawals are taken, and tax deferral is available only to individuals or to entities that benefit individuals, such as certain trusts. Under current law, tax deferral is a basic feature of tax-qualified plans. Placing qualified funds into an annuity does not provide any additional tax benefit. ** Withdrawals may be subject to income tax and IRS penalty tax if made before age 59½. † The beneficiary must be living at the time the benefit is payable, subject to the terms of the annuity contract. Avoidance of probate can also be a benefit of some non-annuity financial products, such as a paid-on-death account, where a beneficiary is named.†† In certain states. Consult an attorney in the state of resident for creditor proof protection. § Assuming annuitant qualifies for benefit.

Power of Tax Deferral Over Time

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AssumptionsPremium $100,000 Annual Crediting Rate 4%Federal Tax Bracket 28%

Equivalent Yield of Taxable Account vs.

Tax-Deferred Annuity

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4% tax-deferred effective annual yield? A taxable account would have to earn 5.56%.

5% tax-deferred effective annual yield?A taxable account would have to earn 6.67%Taxable account rates based on a 25% state and federal tax bracket.

Taxes are deferred until withdrawals are taken, and tax deferral is available only to individuals or to entities that benefit individuals, such as certain trusts. Under current law, tax deferral is a basic feature of tax-qualified plans. Placing qualified funds into an annuity does not provide any additional tax benefit.  

DisclosureThis presentation is not intended as an invitation to purchase any particular insurance product or fixed annuity, nor is it intended as an endorsement of any particular product or company. It is merely intended to provide you with general information about fixed annuities, to assist you in making an informed choice about financial service products currently available to you and to help you determine what products may be best suited for you.

Fixed annuities may be useful retirement tools for some people. However, fixed annuities may not be suitable for all. Please consult a licensed insurance agent regarding your age, health, financial objectives, short- and long-term financial goals, liquidity needs, risk tolerance, and overall financial situation to determine if one is right for you. You should thoroughly review all brochures, specimen contracts, buyer’s guides, and disclosure forms before purchasing any fixed annuity or any other financial services product.

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Disclosure cont’dFixed annuity earnings are tax-deferred until withdrawn. Use of annuities with qualified-type plans [401(k), IRA, 403(v)] may not provide any additional tax benefits above those you already receive in such a plan. Withdrawals may be subject to income tax and a 10% federal income tax penalty if taken before age 59½. Surrender charges may apply if you withdraw more than the penalty-free amount in a year. Fixed annuities generally guarantee a minimum interest rate on all or a percentage of each contribution over the life of the contract, less any withdrawals and/or deductions and early surrender charges. Guarantees are based on the claims-paying ability of the insurer.

Insurance agents do not give legal, investment, or tax advice. Please consult your attorney, accountant, or other qualified professional regarding annuity taxation as it applies to you.

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Thank You!

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