Here’s another installment from Glen Cone of The Legend Group. As always, be sure to consult with your financial advisor regarding your needs and situation.

Here’s another installment from Glen Cone of The Legend Group.  As always, be sure to consult with your financial advisor regarding your needs and situation.

Annuity Basics

A tax-deferred way to save

Fixed annuities may be an appropriate way to save for retirement if you’re not comfortable taking investment risks. Fixed annuities guarantee a specified rate of return for a specified period of time or for life. After the guarantee period is over, your assets are automatically rolled over for a new period at a new rate. The new rate will be higher or lower, depending on the current direction of interest rates. Most fixed annuities have a floor or guarantee which your interest will not fall below. This floor, often tied to the Treasury bill rate or other index, lasts the life of the annuity. Fixed annuity investors should expect a lower return than variable annuities, but they also carry a lower level of risk. Variable annuities are designed for people willing to take more risk with their money in exchange for greater growth potential. A variable annuity is a hybrid of an investment and insurance product. Some of the benefits that variable annuities can offer include:

  • Guaranteed source of income that can last a lifetime
  • Spousal protection, available for an additional fee, that can provide income over two lives
  • Tax advantaged wealth accumulation
  • Guaranteed death benefit
  • Access to investment platforms that offer portfolios with varying investment specialties, strategies, styles, and sectors


An annuity is a contract between you and an insurance company that guarantees to pay you a stream of income at some future date. You determine whether your payments will be of a specific amount or for a

certain period — or for the rest of your life. Annuities are appropriate for long-term saving and are designed for retirement purposes. You can purchase an annuity contract by making either a single payment or a series of payments. Your money grows on a tax-deferred basis until you begin receiving it, typically after age 59.

Annuities are especially appealing during retirement years because they offer protection against outliving one’s assets. Annuities are sometimes confused with life insurance. An annuity can offer both an income stream and a death benefit. Life Insurance pays upon your death and benefits your heirs. Annuities differ from certificates of deposit (CDs) and government bonds as they are not federally insured or guaranteed. All guarantees of an annuity are backed by the claims-paying ability of the issuing insurance company.

There are two basic types of annuities: fixed and variable.

Tax-free transfers among investment options

While variable annuities do not guarantee a specific investment return, they may offer two fundamental guarantees not available elsewhere:  Living benefits that offer a minimum income guarantee: The investor can withdraw a certain percentage of his or her account value as an income stream for life. The lifetime income withdrawal can range from 3 percent to 6.80 percent, depending on when the client turns on their income stream. Living benefits can be built into the annuity, or available as an optional benefit for an additional fee.

A minimum death benefit: After the owner dies, his or her beneficiary(ies) will receive at least what the owner had paid into this annuity, minus any withdrawals. The death benefit generally built into the variable annuity, although there may also be optional death benefit features available for an additional fee.

Access to the money in a variable annuity

There is a misconception that once you purchase an annuity, you lose access to your money. This is not true. However, there are three liquidity issues to consider


Annuity Basics

  1. Annuities are retirement investments. In return for granting tax advantages, the government may impose a 10 percent penalty for withdrawals prior to age 59. This discourages people from tapping into their annuities for non-retirement income. There are exceptions to this penalty as defined by Federal tax law.
  2. The insurance company imposes a charge for some withdrawals made during the surrender period. Once this period is over, investors can access 100 percent of their money without paying a surrender charge but may still have a penalty or tax liability.
  3. The insurance company lets investors access a portion of their annuity every year, without incurring a contingent deferred sales charge (CDSC).

Variable annuities are not short-term savings vehicles. They are for people who want to accumulate

retirement savings over the long term, and then convert those savings into an income stream.


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