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FAQs About AnnuitiesAbout $18 billion of annuities are sold each month, yet these popular retirement savings vehicles are often misunderstood.1 Here are answers to some frequently asked questions about annuities.
Q: What exactly is an annuity?A: An annuity is a contract between you and an insurance company. In exchange for the money you pay to fund an annuity, the insurance company agrees to pay you an income in the future. The amount will depend on your investment, the time period over which payments are spread, and — for variable annuities — the performance of the underlying investments. 
Q: Who can benefit from an annuity?A: Although annuities are not appropriate for everyone, they can provide a number of financial benefits, such as generating income, managing taxes, and diversifying assets. 
Q: How do variable annuities differ from fixed annuities?A: Using a variable annuity, you can invest in a variety of investment options (called subaccounts), including stocks, bonds, and money market portfolios. Variable annuity subaccounts fluctuate with changes in market conditions. When the annuity is surrendered, the principal may be worth more or less than the original amount invested. Fixed annuities, on the other hand, guarantee a fixed rate of return. The guarantees of fixed annuity contracts are contingent on the claims-paying ability of the issuing insurance company. Variable annuities are sold only by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest. 
Q: Are there penalties if I take funds out of an annuity before I retire?A: Most annuities have surrender charges that are assessed during the early years of the contract if the contract owner surrenders the annuity. In addition, if you surrender the contract before age 59½, it may be subject to a 10 percent federal income tax penalty. 1) The Wall Street Journal, August 21, 2005 |
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