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Understanding & Investing in Annuities


What is an annuity?

Annuities are long-term investments specifically designed for retirement. They can help replace a paycheck with predictable income. The income — paid either through optional living benefits for an additional cost or through annuitization, which converts your assets into an income stream — is backed by the claims-paying ability of the issuing insurance company. For many people, buying an annuity offers the reassurance that they won't outlive their investments.
Annuities may help:
  • Generate guaranteed income in retirement
  • Accumulate potential tax-deferred earnings
  • Reduce volatility in a retirement portfolio, though variable annuities are subject to market risk
  • Invest for retirement beyond 401(k)s and IRAs
These articles explain the features and costs of annuities
and important points annuities investors should know:
Annuities may help your income last a lifetime
4 ways to help boost your retirement income

How annuities may fit into your portfolio

  • Annuities can offer the assurance that you won't outlive your savings in retirement
  • All annuity contract guarantees are backed by the claims-paying ability of the issuing
    insurance company
Read: Use annuities to prepare for your future
Use annuities to prepare for your future
Learn more about different types of annuities, their features and how they may be able to help you prepare for retirement.

How to choose an annuity

There are two basic types of annuities:
  • Deferred annuities begin in the accumulation phase. The owner pays premiums into the annuity and chooses from the available investment options. During this phase, earnings typically accumulate on a tax-deferred basis. The owner has the flexibility to start the distribution, or income, phase at a later date, often coinciding with a retirement date.
  • Income annuities go directly into the distribution phase. There is no accumulation phase. Income annuities offer owners a choice of income options in exchange for the premium payment.
There are three types of deferred annuities:
  • Fixed annuities offer a fixed rate of return for a specified period of time. You can select the time period that may be right for you based on your investment horizon and retirement income needs.
  • Indexed annuities, while not a direct investment in the stock market, offer investment growth through returns tied to the performance of market indices, such as the S&P 500, over a variety of time-horizons. Fixed indexed annuities provide 100% principal protection from the insurance company. To offset this protection, gains tied to the annuity are capped, so growth may be less than the actual market gains achieved by the index. Similar to variable annuities, fixed indexed annuities may also offer optional lifetime income benefits for retirement income.Footnote *
  • Variable annuities offer a wide range of professionally managed investment options. The value of the annuity contract fluctuates based on the performance of the underlying investment options (also called subaccounts) chosen by the owner. Optional living benefit riders are available at an additional cost and can provide guaranteed lifetime income, regardless of how the annuity's investments perform.

Action items for annuity investing

Annuities as part of life stage investment planning
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Footnote * Indexed annuities are not a direct investment in the stock market. You cannot invest directly in an index.

Footnote 1 Asset allocation does not ensure a profit or protect against loss in declining markets.

You have choices about what to do with your employer-sponsored retirement plan accounts. Depending on your financial circumstances, needs and goals, you may choose to roll over to an IRA or convert to a Roth IRA, roll over an employer-sponsored plan from your old job to your new employer, take a distribution, or leave the account where it is. Each choice may offer different investment options and services, fees and expenses, withdrawal options, required minimum distributions, tax treatment (particularly with reference to employer stock), and different types of protection from creditors and legal judgments. These are complex choices and should be considered with care. For more information visit our rollover page or call Merrill at 888.637.3343.
This information was prepared to support the promotion and marketing of insurance and/or annuity products.

All annuity contract or rider guarantees, including optional benefits and any fixed subaccount crediting rates or annuity payout rates, are backed by the claims-paying ability of the issuing insurance company. They are not backed by Merrill or its affiliates, nor does Merrill or its affiliates make any representations or guarantees regarding the claims-paying ability of the issuing insurance company.

Annuities are long-term investments designed to help meet retirement needs. They are a contractual agreement where a client makes payments to an insurance company, which, in turn, agrees to pay out an income stream or a lump sum amount at a later date. Annuities typically offer (1) tax-deferred treatment of earnings; (2) a death benefit; and (3) annuity payout options that can provide guaranteed income for life. There are contract limitations, fees and charges associated with annuities which include, but are not limited to mortality and expense risk charges, sales and surrender charges, administrative fees, charges for optional benefits as well as charges for the underlying investment options. Variable annuity contract values will fluctuate and are subject to market risk including the possible loss of principal. Early withdrawals may be subject to surrender charges and taxed as ordinary income, and in addition, if taken prior to age 59½, an additional 10% federal tax may apply. Withdrawals reduce annuity contract benefit, values and optional guarantees in any amount that may be more than the actual withdrawal. Past performance should not be a representation of future performance.

Merrill and its Financial Solutions Advisors do not provide tax, accounting or legal advice. Please consult your own independent advisor as to any tax, accounting or legal statements made herein.