1. What are annuities?

Annuities are financial products designed for retirement planning that people can include as part of their retirement savings strategy. Simply, an annuity is a contract between you and an insurance company. In return for the money you pay to buy the annuity, which is called a premium, the insurance company will give you a series of payments that are guaranteed to last for a period of time you select in advance. An annuity could pay you for your entire life – even if you live to 120 – for your spouse’s entire life, or for a set period of time that you select, depending upon the type of annuity. Additionally, you can withdraw funds from some types of annuities.

2. What are the most common types of annuities?

Variable annuities are long-term financial products designed for retirement planning that allow you to invest in the market. Variable annuities provide you with growth potential when the market is up, but can also mean you can lose money when the market drops.

Fixed deferred annuities guarantee your premium payment and guarantee a fixed annual rate of return for set periods of time until you’re ready to start getting payments.

Immediate annuities allow you to turn a lump sum of money into a stream of guaranteed payments that can last for your lifetime, or a set period of time, depending on your preferences. 

Deferred income annuities allow you to take money that you have today and turn it into a guaranteed stream of lifetime payments in the future.

3. How are annuities taxed?    

Generally, annuities grow tax-deferred, which means you don’t pay taxes on the earnings until you withdraw them or you convert them to a stream of payments, also known as annuitization. This may mean you get a tax advantage, especially if you don’t begin to make withdrawals or convert your annuity to a stream of payments until you’re in a lower tax bracket (such as when you’re in retirement). It’s good to keep in mind that if you make a withdrawal, any earnings in your contract will be taxable. You may also choose to receive income once you annuitize the contract. If there are earnings in your annuity contract, each payment will be partly taxable and partly a return of your investment once you annuitize.

In addition, there may be tax penalties if you make a withdrawal from your annuity contract before age 59 ½, unless you meet one of the exceptions to the penalty rules. Before making any decisions regarding an annuity, you should seek specific advice from an independent tax, legal, or financial professional. 

4. What questions should you ask a financial representatives about annuities?

These are a few things to consider. Annuities are not a liquid investment, which means that your money will be tied up in a contract. With some annuities, you can opt to cancel, or “surrender” the contract to receive the value of your contract, but a surrender charge may be applied if your premium (the money you paid in) was in the annuity for less than a specified number of years. Ask your financial representative about the terms of any surrender charges. Certain annuities may also come with annual fees or additional fees for optional contract features, so ask your representative what fees you’ll have to pay. Some annuities or annuity benefits may be based on market performance, so ask your representative for the details. You’ll also want to know what kind of financial rating your insurance company has. Ratings tell you how financially secure the company is, so you’ll want to make sure you’re purchasing from a trusted insurer so you can feel confident the money will be there when you need it.

5. Are annuities a good investment in addition to other strategies?

As part of the mix in your retirement planning strategy, annuities may help you achieve a greater level of income stability, so that no matter how long you live, you won’t outlive that stream of income. If the income you receive from an annuity can cover your fixed costs, you can spend your other retirement savings with greater confidence.

Disclaimer

The information provided herein is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any federal tax penalties. This information supports the promotion and marketing of this annuity.

Current tax law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the particular set of facts and circumstances. Entities or persons distributing this information are not authorized to give tax or legal advice. Individuals are encouraged to seek specific advice from their personal tax or legal counsel.

Insurance products are offered through a licensed/registered bank or broker/dealer (financial institution), but underwritten by insurance companies. All guarantees mentioned on this site are guarantees of the insurance company and not guarantees of the financial institution.

Annuity guarantees are backed exclusively by the strength and claims-paying ability of The Guardian Insurance & Annuity Company, Inc. (GIAC).

Contract provisions and investment options vary by state.

Annuities are issued by The Guardian Insurance & Annuity Company, Inc. (GIAC), a Delaware corporation. Individual variable annuities are distributed by Park Avenue Securities LLC (PAS). GIAC is a wholly owned subsidiary of The Guardian Life Insurance Company of America (Guardian). PAS is a wholly owned subsidiary of Guardian. Guardian, GIAC, and PAS are located at 10 Hudson Yards, NY, NY 10001. 

There is no additional tax deferral benefit for annuity contracts purchased in an IRA or other tax-qualified plan, since these are already afforded tax-deferred status. Thus, an annuity should only be purchased in an IRA or qualified plan if you value some of the other features of the annuity and are willing to incur any additional costs associated with the annuity to receive such benefits.

Variable annuities are long-term investment vehicles that involve certain risks, including possible loss of the principal amount invested. The investment return and principal value may fluctuate so that the investment, when redeemed, may be worth more or less than the original cost. Withdrawals of taxable amounts will be subject to ordinary income tax and possible mandatory federal income tax withholding. If taken prior to age 59½, a 10% IRS penalty may also apply. Withdrawals affect the variable annuity’s death benefit, cash surrender value and any living benefit and may also be subject to a contingent deferred sales charge.

 

PAS: member FINRA, SIPC

 

Not a Deposit | Not FDIC or NCUA Insured | May Lose Value | No Bank or Credit Union Guarantee

 

Annuities Disclosure for Park Avenue Securities

 

This material is intended for general public use. By providing this material, Guardian is not undertaking to provide investment advice for any specific individual or situation, or to otherwise act in a fiduciary capacity. Please contact a financial professional for guidance and information specific to your individual situation.

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