Will You Outlive Your Money?
Life expectancies for older Americans continue to rise with healthier lifestyles and medical advances. It is not unusual to live past 90, and many people live even longer. By 2050, it’s estimated that there will be almost 400,000 Americans age 100 or older.1
That’s good news for those who maintain their health and lifestyle, but it means that retirement savings may have to last longer than ever before. In a recent survey of workers age 50 and older, the biggest retirement concern — expressed by 43% of respondents — was the fear of outliving their savings and investments.2
One way to address this concern is to purchase an annuity, a contract with an insurance company that offers a future income stream in return for one or more premium payments. Annuities may be structured in many different ways, but in general they fall into two categories: fixed and variable.
A fixed annuity offers a set rate of return during the life of the contract, which may be the owner’s lifetime, the lifetimes of two people, or a specific number of years. Payments from an immediate fixed annuity begin right away (or within one year) and continue for the duration of the contract at a specified rate.
Payments from a deferred fixed annuity start at some point in the future at a rate that reflects the value of any tax-deferred growth during the accumulation period. Assuming the same principal investment and contract duration, a deferred fixed annuity might provide a larger future income stream than an immediate annuity.
Variable Growth Potential
A variable annuity offers the potential for growth because a portion of the premium is invested among various investment options. The annuity’s future value and income stream are largely determined by the performance of the selected investments. To help protect against market risk, you may be able to purchase guarantees for an additional cost.
Generally, annuities are purchased with after-tax dollars, in which case only withdrawn earnings are taxable as ordinary income. Early withdrawals prior to age 59½ may be subject to a 10% federal income tax penalty. Most annuities assess surrender charges if the contract owner sells or withdraws money during the annuity’s “surrender period.” Withdrawals reduce annuity contract benefits and values.
Any annuity guarantees are contingent on the financial strength and claims-paying ability of the issuing insurance company. Annuities typically have contract limitations, fees, and charges, which can include mortality and expense charges, account fees, investment management fees, administrative fees, charges for optional benefits, holding periods, termination provisions, and terms for keeping the contract in force. Annuities are not guaranteed by the FDIC or any other government agency. They are not deposits of, nor are they guaranteed or endorsed by, any bank or savings association.
A variable annuity is a long-term investment vehicle designed for retirement purposes. The investment return and principal value of the investment options are not guaranteed and may fluctuate with changes in market conditions. When the annuity is surrendered or annuitized, the principal may be worth more or less than the original amount invested.
Variable annuities are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the variable annuity contract and the underlying investment options, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.
1) U.S. Census Bureau, 2014 (most current data available)
2) MarketWatch, July 21, 2016