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Which
Annuity Is Right for You?
Of the two-thirds of Americans who have
calculated how much money they will need in retirement, nearly half made changes
in their retirement planning after crunching the numbers. Chief among the
changes were saving more and changing their investment allocation.1
If you want to ramp up your retirement savings plan, annuities may be an
appealing option because they offer a diverse selection of products that can be
customized to fit your particular situation.2
Fixed or Variable
A fixed annuity pays a guaranteed rate of interest for a specified
period of time, generally one to three years. After that time, the contract may
be adjusted to reflect current conditions for another specified period, but most
contracts have an interest rate floor that ensures a minimum return. Like most
annuity contracts, fixed annuities offer flexible payout options, including a
lifetime benefit period that pays a fixed amount each month for the rest of your
life.
A variable annuity typically offers the opportunity to invest a portion
of your premium in subaccounts that may pursue returns in the stock or bond
markets. With this type of annuity, your principal is subject to the investment
risks of the subaccounts you choose.3 The
investment objectives of these subaccounts can range from preservation of
principal to aggressive growth. Any earnings accumulate tax deferred, and the
payout amount in retirement is based on the account value.
Choose
Your Payout
Fixed and variable annuities typically allow you to choose whether you want to
receive an immediate income or payments in the future. With an immediate
annuity, you give the issuer a lump sum and begin receiving payments right
away. With a deferred annuity, you pay premiums during the accumulation
phase and receive an income during the distribution phase.
Annuity contracts often involve large sums of money, so making sound decisions
is critical. Having the appropriate annuities working for your retirement may be
a tremendous benefit.
1) Kiplinger’s Personal Finance, March 2003
2) Annuity withdrawals are taxed as ordinary income and may be subject to
surrender charges plus a 10 percent federal income tax penalty if made prior to
age 59½. Surrender charges may also apply during the early years of the
contract. The guarantees of annuity contracts are contingent on the
claims-paying ability of the issuing insurance company.
3) Generally, variable annuities contain mortality and expense charges, account
fees, investment management fees, and administrative fees. Variable annuity
subaccounts fluctuate with changes in market conditions, and when surrendered,
the principal may be worth more or less than the original amount invested.
Variable annuities are long-term investment vehicles designed for retirement
purposes. They are sold by prospectus only. Be sure to read the prospectus
carefully before deciding whether to invest.
© 2003 Emerald Publications
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