Income Solutions® Frequently Asked Questions

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Frequently Asked Questions about Immediate Annuities

Frequently Asked Questions about Immediate Annuities

What is an immediate annuity?

An immediate annuity is a long-term contract between an annuitant and an insurance company for which the annuitant pays a one-time premium payment to the insurance company. The insurance company converts the assets into a stream of guaranteed monthly income payments for life or a specific fixed period of time. As the name implies, an immediate annuity provides income immediately after the premium is received; typically within 30 days from the date of deposit, however, the annuitant can choose to defer payments for up to 12 months after the date of purchase.

Who should consider purchasing an immediate annuity?

If you are nearing or in retirement, or have a lump sum of money that you want to turn into a secure stream of income, you may want to consider an immediate annuity in your retirement planning process.

What types of immediate annuities are available through Income Solutions^®?

Click here to view the various types of immediate annuities available through Income Solutions^®

How do I know which type of annuity is right for me?

Determine what your objective of the annuity is by asking yourself some of the following questions:
Are you concerned about outliving your retirement assets?
Do you want to receive income payments for a fixed period (i.e. 5, 10, 15, or 20 years) or for the rest of your life?
Is it necessary that your spouse, significant other or dependents have an income after your death?
Explore the Income Calculator offered through Income Solutions^®. This is a tool that can model potential payment streams for the various types of immediate annuities offered through Income Solutions^®.
Consult with your tax advisor, accountant or financial planner for help in evaluating your financial situation.

What are the benefits of an immediate annuity?

Guaranteed Income Replacement
Safety of Principal
Tax Advantages
Asset Preservation
Supplemental Income
Retirement Portfolio Diversification

What is the difference between an annuity and life insurance?

An annuity has often been described as the opposite of life insurance due to the fact that an annuity pays income during your lifetime, whereas life insurance usually pays after your death. With an annuity, the insurance company bears the financial burden if the annuitant lives longer than expected.

How do I determine how much monthly income I will need in retirement?

Many financial experts estimate that you will need between 60 to 90% of your pre-retirement income in order to maintain the same standard of living during retirement years; however this will vary by individual needs and circumstances. Speak with your tax advisor, accountant or financial planner in evaluating your entire financial picture.

What happens to my annuity payments if I die?

This depends on the type of annuity you purchase. Immediate annuities can be structured to provide continued income or a survivor death benefit.

Click here to view the various types of immediate annuities available through Income Solutions^®

What is the difference between a joint annuitant and a beneficiary?

If a joint & survivor annuity is purchased, a joint annuitant is the person named to continue receiving benefit payments upon the annuitant's death, depending on the annuity type purchased. Depending on the type of annuity, the joint annuitant's gender and age are also used to determine how long benefits are payable. A joint annuitant is also a co-owner of the annuity, whereas a beneficiary is not. After a purchase is made, the joint annuitant can not be changed, whereas the beneficiary can be changed.

A beneficiary is a person named to receive a lump sum death benefit or monthly payments after the annuitant and/or joint annuitant's death, if applicable.

10.

Is it possible for my annuity payments to be subject to any tax penalties?

The Internal Revenue Code provides that if your distribution is considered “premature” (in other words, if it commences before you attain age 59), it will be subject to a 10 percent penalty tax unless an exception applies. One such exception to the penalty tax is if you receive your “premature” distributions in a series of substantially equal periodic payments which occur at least once a year and are made for either your life (or life expectancy) or the joint lives (or life expectancies) of you and a beneficiary. For these purposes, a form of distribution such as a five year certain annuity will not be considered a series of substantially equal periodic payments made for either your life (or life expectancy) or the joint lives (or life expectancies) of you and a beneficiary.

11.

What if I modify my series of substantially equal periodic payments?

The Internal Revenue Code provides that if your series of substantially equal periodic payments is modified at any time during the later of (1) five years after your first payment or (2) your attainment of age 59 1/2, you may be subject to the 10 percent penalty tax. The penalty tax will be applied in the taxable year that you modify your payment and will also apply back to each of your periodic payments, with interest, from your original distribution date.

The IRS does, however, permit you to make a one time election to switch from your method of calculating substantially equal periodic payments to a method known as the “required minimum distribution” method without violating the substantially equal periodic payment requirement. This one time election can be used in any year after the year in which distributions to you begin.