Annuities Basic Introduction To Fixed ANNUITIESFew financial tools have experienced the meteoric rise in popularity as annuities have. If you’re over the age of 50, you’ve surely seen articles, advertisements and educational events promoting these innovative tools. But you probably have some questions: How do annuities protect my money? Are annuities safe? Will I pay taxes on assets inside an annuity? How accessible is my money in an annuity?With my experience in the field of fixed annuities1, I encounter these questions and many others on a daily basis. The purpose of this page is to shed light on some of the benefits of annuities in an effort to give you an accurate representation of fixed annuities and to answer some of the basic questions many people have.PROTECTION:Annuities help provide many safety nets for retirees. Each carrier receives a rating from four independent agencies that rate the financial strength of the insurance company. Secondly, insurance companies may also buy insurance on their assets: this practice is called re-insurance. As an added benefit of being an insurance product, annuities offer guarantees to their owners.2 Fixed annuities offer a promise of a minimum rate of interest and a fixed amount of periodic payments to their owners. After the market dropped in the 2000’s the ability to eliminate losses has become an appealing feature that separates annuities from many other financial tools. Guarantees mentioned herein are backed by the claims-paying ability and financial strength of the issuer.TAX ADVANTAGES:If you’ve ever had an IRA or a 401k you’ve had experience with a financial tool that is tax deferred. Tax deferral allows you to avoid paying income taxes on gains inside the account. The only time you will pay taxes on your money is when you make a withdrawal on the account (or when you reach age 70 ½ and are required to take distributions). Every dollar inside an annuity, benefits from tax deferral,3 even if it is savings outside of a qualified account. By utilizing an annuity as part of a retirement strategy, many people may be able to reduce their tax burden while allowing their assets to grow in a safe vehicle.4INCOME:Perhaps the greatest benefit of annuities is the ability they have to provide income that lasts for life. In a traditional retirement vehicle like mutual funds, retirees have a balancing act to perform between withdrawing enough income to fund retirement while at the same time preserving enough money to make their account last as long as they will live. Annuities solve this puzzle by offering income guarantees in many types of products. The carrier takes the risk of the account running out of money and guarantees income payments from the policy for the life of the owner (s). Income payouts vary based on age and product.5 If you are concerned about outliving your income in retirement, an annuity may be the right solution for some of your nest-egg dollars. Guarantees mentioned herein are backed by the claims-paying ability and financial strength of the issuer. NURSING CARE:Annuities come in many shapes and sizes. Some are designed as income generators with unique features to maximize income. Others are built to manage the risk of other retirement hazards like long-term care. While the exact features vary from product to product, many annuities have features that may double or even triple the income you will receive for a period of time should you become disabled or enter long-term care. It’s important to work with a skilled annuity advisor to find the product that appropriately addresses your needs, but if the high-cost of long-term care is an issue concerning you, there are many annuity products that are tailored to help you manage this risk through retirement.LIQUIDITY:Many of the criticisms of annuities center on the idea that annuities lock up your money. Annuities are most powerful when given time to do their job, and are best suited for retirees planning to leave their money in an annuity for a period of time. There is a surrender charge imposed generally during the first 5 to 7 years that you own the contract. Most annuities allow for a 10% withdrawal from the account each year with no penalties. As the policy remains in force for multiple years, the liquidity in the policy gets more readily available. Most people don’t have plans to spend their nest-egg in as little as 10 years, so even just a 10% withdrawal rate is adequate for many annuity buyers. As with every aspect of annuities, working with a reputable and skilled annuity advisor is essential to find the product with the features that are most important to you.DEATH BENEFITS:We’ve all heard horror stories of people who did not make good plans for their passing that resulted in their estate entering the probate courts. Probate is a difficult process to navigate in which the state deems who should receive the various assets from the estate. Often times, attorneys and government agencies eat up a large portion of the assets that would have otherwise gone to loved ones. While building a solid estate plan should include a will and the services of an attorney, life insurance products, and annuities are never subject to this estate process because of the beneficiary features inside the contract. By designating someone as your beneficiary on an annuity or life insurance contract, the assets inside that vehicle are exempt from the probate process even if no will is in place. This is just one feature that can greatly simplify the estate planning process. 1 Fixed Annuities are long term insurance contacts and there is a surrender charge imposed generally during the first 5 to 7 years that you own the annuity contract. Withdrawals prior to age 59-1/2 may result in a 10% IRS tax penalty, in addition to any ordinary income tax. Any guarantees of the annuity are backed by the financial strength of the underlying insurance company.2 Annuities are insurance contracts that, depending on the contract, may offer a guaranteed annual interest rate. Contracts have substantial variation in terms, costs of guarantees and features including withdrawal charges. Any guarantees offered are backed by the financial strength of the insurance company, not an outside entity. Investors are cautioned to carefully review an annuity for its features, costs, risks and how the variables are calculated.3 Purchasing an annuity within a retirement plan that provides tax deferral under sections of the Internal Revenue Code results in no additional tax benefit. An annuity should be used to fund a qualified plan based upon the annuity’s features other than tax deferral. All annuity features, risks, limitations, and costs should be considered prior to purchasing an annuity within a tax-qualified retirement plan.4 Guarantees mentioned herein are backed by the claims-paying ability and financial strength of the issuer. 5 With the purchase of any additional-cost riders, the contracts values will be reduced by the cost of the rider. This may result in a loss of principal and interest in any year in which the contract does not earn interest or earns interest in an amount less than the rider charge. Some riders may not be available in all States.