MAKING THE DECISION TO BUY AN ANNUITY IS AN IMPORTANT STEP IN YOUR RETIREMENT PLAN.

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2 MAKING THE DECISION TO BUY AN ANNUITY IS AN IMPORTANT STEP IN YOUR RETIREMENT PLAN. The key is having enough accurate and reliable information so you know you are making decisions that are right for you. One of those reasons may be to protect your savings from another market crash or that you want the certainty that an annuity will pay an income as long as you live, no matter how long that is. To help you make the best decision for your future, you need information. The Center for Annuity Awareness as a clearinghouse of information, tools and access to professional advisors. This effort is about more than just your savings. It s about helping you secure the lifestyle and peace of mind that will provide the product solutions that will help you maintain independence as you age. This guide will help you with that process. Also, the Center for Annuity Awareness reminds you to seek the help of an annuity professional or insurance agent before making major decisions. What is an Annuity?... 3 Why do people buy annuities?... 3 Different types of annuities... 3 Riders... 4 Fees and Penalties... 4 What you need to know before you buy an annuity.. 4 How to shop for an annuity... 4 Finding an advisor... 4 Preparing for a discussion about annuities

3 WHAT IS AN ANNUITY? An annuity is insurance against living too long. Annuities insure your savings will last as long as you do no matter how long that is. With an annuity, you re buying longevity income to insure your savings last your entire life. WHY DO PEOPLE BUY ANNUITIES? People buy an annuity for peace of mind. Most of us have a parent, or an uncle, maybe multiple relatives, who have lived into their 90s. It takes a lot of money to live two and three decades in retirement. An annuity guarantees you won t outlive your money, which is the No.1 fear among retirees. DIFFERENT TYPES OF ANNUITIES Annuities come in many different forms, each tailored to accomplish slightly different goals. For example, you can pay a lump sum to get an annuity stream now or later. Here is a general list of different kinds of annuities: 1. Immediate annuities: Are the simplest form. You turn over a lump sum to the insurance company for lifetime payments starting immediately. 3. Index-based annuities: Known as fixed indexed annuities (FIAs), FIAs are annuities that guarantee a minimum percentage of return, but also add another part that can offer a higher percentage. That part is linked to an index, such as the S&P 500. If the index has a bad year and drops below 0 percent return, your annuity would earn 0 percent interest that year but would not lose money. To use an example: If the S&P 500 started at 1200 and ended at 1100 you would earn 0 percent for the crediting period. 4. QLACS: Qualifying Longevity Annuity Contracts are longevity annuities that can be purchased within an IRA or 401(k). They were introduced by the Obama administration in 2014 and allow owners to delay Required Minimum Contributions to as late as age Variable annuities: VAs invest directly into mutual funds and is a security. VAs can offer a higher return when markets do well, but you can lose money if markets drop. Advisors who offer these must be licensed to sell securities and insurance. 2. Deferred annuities: Would postpone the income stream. This allows the value of the annuity to grow, leading to a larger income later. The initial payment can be in a lump sum or in installments. 3

4 EXPLANATION OF RIDERS Riders are additional benefits that can be added to annuities. For example, a long-term-care rider would allow clients to withdraw money if they had long-term-care needs. That would be in addition to the other benefits of the annuity. But you may be charged a fee for some riders. You need to ask your annuity advisor or insurance agent if a benefit or feature does cost you money. FEES AND PENALTIES Annuities come with fees and it is important to know what they are. Like your 401(k) or IRA, if you want your money back early, there will be penalties in the case of fixed annuities, they would be surrender charges. With variable annuities, there are also management and administrative fees. If you want riders that provide extra benefits to your annuity, additional charges would apply. Annuities enjoy the same tax benefits as employer-sponsored retirement plans. The interest you earn on the annuity is tax-deferred until you start to take the money out of the annuity. If you use pretax money to purchase an annuity, then all the money taken out of will be fully taxed. If you use after-tax dollars to buy an annuity, however, then a portion of the payouts will be a tax-free return of your principal, but the earned interest would be taxed. WHAT YOU NEED TO KNOW BEFORE YOU BUY AN ANNUITY Before buying an annuity, you should know what your retirement financial goals are, and how an annuity fits into your overall plan. Then you need to know how an annuity works and how well it would perform vs. comparable investment options to meet those goals. Finally, you are well-served to have a reliable advisor who can connect you with the right product. HOW TO FIND AN ANNUITY THAT S RIGHT FOR YOU You can look for an annuity by comparing prices and options for several different companies. You can check out the insurance company through one of the ratings services A.M. Best Company, Moody s Investor Service or Standard & Poor s Ratings. FINDING AN ADVISOR Because annuities are considered an insurance product, only insurance companies can issue them. Anyone selling and marketing annuities must hold an active life insurance license. To sell and market variable annuities requires a securities license in addition. The Center for Annuity Awareness can help you find an experienced, qualified advisor. Just visit our website at: 4

5 PREPARING FOR A DISCUSSION ABOUT ANNUITIES Here is a list of questions suggested by the National Association of Insurance Commissioners: How does this type of annuity match my financial and investment objectives, risk tolerance and time horizon? Do I understand the risks associated with an annuity? Am I comfortable with them? How will this annuity help me meet my overall financial and investment objectives? Will I use the annuity for a long-term goal such as retirement? If so, how could I achieve that goal if the income from the annuity isn t as much as I expected it to be? What features and benefits in the annuity, other than tax deferral, make it appropriate for me? Am I taking full advantage of all of my other tax-deferred opportunities, such as 401(k)s, 403(b)s, and IRAs? Do I understand all of the annuity s fees and charges? Do I intend to keep my money in the annuity long enough to avoid paying any surrender charges? Have I consulted a tax advisor and/or considered how buying an annuity will affect my tax liability? If I m exchanging annuities, how do the fees and charges of the replacement annuity compare to the existing one? Will I lose the value of optional living or death benefits on my existing contract? Also get your FREE copy of The Truth About Annuities DOWNLOAD NOW 5