Introduction to Annuities
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This document provides an overview of annuities, explaining their structure, benefits, and comparison with other retirement accounts. Annuities offer tax-deferred growth and guaranteed income, with options for fixed or variable payouts depending on the type of annuity chosen. Additionally, it discusses the importance of understanding associated fees, tax implications, and the roles of parties involved in annuity contracts.
Introduction to Annuities
- 1. An Introduction to Annuities Funding Your Future
- 2. What Is an Annuity? An insurance-based contract between you and the issuer You pay premiums with after-tax dollars Issuer invests your money Earnings accumulate tax deferred Earnings are taxed as ordinary income when distributed
- 3. Why Buy an Annuity? To receive tax-deferred growth for savings and a dependable stream of income for life To save for a specific purpose To supplement other sources of retirement income To maintain financial independence
- 4. Taxable vs. Tax-Deferred Growth $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Balance at end of year InvestmentValue Taxable Investment Tax-Deferred Investment Taxable vs. Tax-Deferred Growth Assumptions: $10,000 initial investment Tax rate 28% Growth rate 7% (after-tax growth rate 5.04%) Annual end of period compounding This hypothetical example is for illustrative purposes only, and its results are not representative of any specific investment or mix of investments. Actual results will vary. Taxable investment assumes earnings are taxed as ordinary income and is not reflective of possible lower maximum tax rates on capital gains and dividends which would make the taxable investment return more favorable thereby reducing the difference in performance between the accounts shown. Applicable annuity charges are not reflected in this illustration. Had they been included, the return of the annuity would be lower. You should consider your personal investment horizon and income tax brackets, both current and anticipated, when making an investment decision as these may further impact the results of the comparison. $43,716 $76,123
- 5. Annuities vs. 401(k)s and IRAs Feature Annuities (Nonqualified) 401(k)s and Traditional IRAs Roth IRAs Tax-deferred earnings Tax-deductible or pretax contributions Unlimited contributions *Guaranteed minimum death benefit RMDs *Tax on withdrawals *Guaranteed lifetime income *Fees and charges *Guarantees are subject to the claims-paying ability and financial strength of the issuer. The earnings portion of annuity withdrawals is subject to income tax at ordinary income tax rates. Pretax or tax-deductible contributions and pretax earnings are subject to income tax at ordinary tax rates when withdrawn. Annuities, particularly variable annuities, may impose higher fees, charges, and expenses than the other plans.
- 6. Parties to an Annuity The owner: Purchases the annuity May make withdrawals Receives annuitization payments if elected The issuer: Issues the annuity Accepts the premiums Promises* to pay the annuity benefits The annuitant: Provides the measuring life for determining annuity payouts Typically, the annuitant is also the owner The beneficiary: Is named by the owner Receives the remaining benefits, if any, at the owner’s death *Guarantees are subject to the claims-paying ability of the annuity issuer.
- 7. Putting Money in an Annuity One lump-sum payment A series of equal or variable payments over time The accumulation phase is the time period when you’re making the premium payments. You can make:
- 8. Immediate vs. Deferred Annuities Immediate annuities Typically purchased with a single lump-sum premium Payouts begin within one year of purchase Deferred annuities Typically purchased with periodic payments Payout begins at some future date, allowing time for tax- deferred growth
- 9. Fixed Annuities Guaranteed return of principal and minimum interest Fixed interest earnings Generally no fees Variable Annuities Generally no guaranteed earnings based on subaccount performance Investment choices in subaccounts Fees and charges assessed to account value Guarantees are subject to the claims-paying ability and financial strength of the annuity issuer. Fixed and Variable Annuities
- 10. You Insurance Company Beneficiary You (Deceased) Funds invested as part of the issuer’s general account are subject to the claims of the issuer’s creditors. Guarantees are subject to the claims- paying ability of the issuer. Earns interest Putting Money in a Fixed Annuity
- 11. BeneficiaryYou Insurance Company Premium Payments Investments Annuity Payments Guarantees are based on the claims-paying ability and financial strength of the annuity issuer. Putting Money in a Variable Annuity Subaccounts Stocks Bonds Blend
- 12. Guaranteed Death Benefit If death occurs before annuitization, full repayment of premiums If death occurs after annuitization, some payout options continue payments to your beneficiary *Guarantees are subject to the claims- paying ability and financial strength of Annuities can provide guaranteed* death benefits to your named beneficiaries.
- 13. Annuity Fees and Expenses Some fixed annuities may charge an annual contract fee Variable annuities: Annual contract fee Mortality and expense risk charge Subaccount costs may include investment fees and operational costs Both may charge surrender fees
- 14. Taking Money Out of an Annuity Withdraw principal and/or earnings (withdrawal of earnings prior to age 59½ may be subject to 10% additional tax) Select a guaranteed* income option of a fixed or variable amount over a specific period of time or for life (annuitization) Nonqualified annuities aren’t subject to required minimum distributions (RMDs) *Guarantees are subject to the claims- paying ability and financial strength of the annuity issuer.
- 15. Annuitizing an Annuity *Guarantees are subject to the claims- paying ability and financial strength of the annuity issuer. Fixed annuities convert to a stream of guaranteed* fixed payments Variable annuity options: Convert to guaranteed* fixed payments Take variable payments Combination fixed and variable payments Once annuitized, you usually can’t invest further or take other withdrawals
- 16. Factors Affecting Annuitization Payments The cash value of your account (fixed annuities) The performance of your underlying investments (variable annuities) The age and gender of the annuitant The payout option you choose
- 17. Annuity Payout Options Payments for life Payments for a specified period Payments for life with term certain Refund life Joint and survivor life For variable annuities, the amounts of your payments may vary with the performance of your underlying investments Guarantees are subject to the claims- paying ability and financial strength of the annuity issuer.
- 18. Annuities--Tax Consequences Income tax imposed at ordinary income tax rates on earnings portion of withdrawals or payouts Withdrawals are considered to be made from earnings first; annuitization payments are part return of principal and part earnings With certain exceptions, an additional 10% premature distribution tax imposed on distributions of earnings made prior to age 59½
- 19. Common Annuity Riders Fixed Annuities Living needs/long-term care Disability/unemployment Terminal illness Variable Annuities Guaranteed withdrawal benefit Guaranteed accumulation benefit Guaranteed minimum income benefit Immediate Annuities Commuted payout benefit Cost-of-living benefit Cash/installment refund Guarantees are subject to the claims-paying ability and financial strength of the annuity issuer.
- 20. Important Information about Variable Annuities Variable annuities are long-term investments suitable for retirement funding, and are subject to market fluctuations and investment risk, including the possibility of loss of principal. Variable annuities contain fees and charges including, but not limited to, mortality and expense risk charges, sales and surrender (early withdrawal) charges, administrative fees, and charges for optional benefits and riders. Variable annuities are sold by prospectus. You should consider the investment objectives, risk, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the variable annuity, can be obtained from the insurance company issuing the variable annuity, or from your financial professional. You should read the prospectus carefully before you invest.
- 21. Conclusion I would welcome the opportunity to meet individually with each of you to address any specific concerns or questions that you may have. Annuities can offer tax- deferred earnings and income for life.* *Guarantees are subject to the claims-paying ability and financial strength of the annuity issuer.
- 22. Disclaimer IMPORTANT DISCLOSURES D’Arcy Wealth Management, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.