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Annuities are investment products that can help extend the life of your savings and are typically used as part of a retirement plan. Annuities provide a fixed, stable income once you stop working. You are paid a monthly, quarterly, biannual or annual distribution for a specified period of time. The amount of your distribution is based on the growth of your annuity account.

Fixed Annuities

Fixed annuities provide income payments in fixed amounts, which can help you pay expenses during retirement. Payments are determined by the annuity contract. Fixed annuities offer more conservative investors a safe and steady way to grow assets at a fixed rate of interest tax deferred. The issuer of the annuity guarantees that a minimum rate of interest will be paid, but the actual rate of interest credited to the annuity is typically higher than the guaranteed rate. All of the premium payments that you make to the issuer will then compound (tax deferred) at least at the guaranteed rate of return, subject to the claims-paying ability of the annuity issuer.

Immediate Annuities

Immediate annuity contracts provide an immediate income stream after your one-time purchase payment. When you purchase an immediate annuity you can choose between payments for a certain period of time (typically five to twenty years), the rest of your life and/or your spouse’s life, or any combination of the two.

Variable Annuities

Variable annuities are long-term investment vehicles that provide income varying from payment-to-payment based on the performance of the underlying investments. They're designed to help offset the effects of inflation. The variable sub accounts are subject to market risks. These risks include fluctuating returns and possible loss of principal; therefore, your investment, when redeemed, may be worth more or less than the original cost. Withdrawals prior to age 59 1/2 are fully taxable and may be subject to a 10-percent IRS penalty. Early withdrawals may be subject to additional fees. Withdrawals after 59 1/2 are generally taxed at ordinary income rates with no additional IRS penalties.
Variable annuities enable you to invest in a selection of portfolios, called sub-accounts. Choices range from the most conservative, such as money market, guaranteed fixed accounts, and government bond funds, to more aggressive such as small cap, mid cap, large cap, and emerging markets investments. Some have as many as sixty or more investment choices with fifteen or more managers, and allow you to switch between them at no cost and without tax consequences (although excessive changes to your contract could result in the imposition of a small fee, so be sure to consult your financial planner or prospectus if you plan to make frequent changes.)

Equity-Indexed Annuities

An equity-indexed annuity (EIA) is similar to other annuities. You pay premiums in a lump sum or periodically, and the issuer promises to pay you some amount in the future. With an EIA, the interest earnings are tied to the performance of an equity index. The EIA issuer also provides a minimum guaranteed interest rate on your premiums paid. With an EIA, your interest earnings may increase if the market performs well. However, if the market performs poorly, your principal still earns a minimum interest rate according to the terms of the annuity contract.

Equity-index annuity investments are determined by computing the difference between the value of the index to which the annuity was linked on the annuity's issue date and the value of the same index on the annuity's maturity date. If the difference is negative (i.e., the market performed poorly and the value of the index decreased), interest is calculated using the minimum rate guaranteed by the issuer. If the difference is positive (i.e., the market performed well and the value of the index increased), the interest rate used is a percentage of the difference-- but usually not the entire difference.

Unlike variable annuities where the buyer's money is directly invested in sub account portfolios, buyers of Equity-indexed annuities are not directly invested in the index or the equities comprising the index. The index is merely the instrument used to measure the gain or loss in the market, and that measurement is used to calculate the interest rate. An equity index represents the total dollar value of the stocks or bonds of the companies comprising the index.

Note however, that any return, whether guaranteed or not, is only as good as the insurance company that offers it. Both the Equity-index annuity’s principal and its earnings are entirely dependent on the insurer's ability to meet its financial obligations.

Contact us to determine if an annuity meets your need and is the right investment for you.

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