Many variable annuity contracts offer “living benefit” guarantees. For an additional cost, the contract holder may be able to purchase guarantees regardless of the account value.
Adding a guaranteed minimum withdrawal benefit to a variable annuity contract could allow the contract owner to withdraw a fixed percentage (usually 5% to 7%) of the premiums paid until 100% of the premiums paid had been withdrawn, even if the contract’s underlying investments were to lose money.
A guaranteed minimum income benefit could help ensure that when the contract owner is ready to collect retirement income payments, they would be based on a minimum payout base even if poor market performance lowers the value of the underlying investments.
A guaranteed minimum accumulation benefit could help ensure that the contract value will not fall below a specified minimum after a specified term. The minimum is usually equal to the premiums paid.
A variable annuity is a long-term financial vehicle used for retirement purposes. With a variable annuity contract, one or more payments are made to an insurance company, which agrees to pay an income stream or a lump-sum amount at a later date. Variable annuities have contract limitations, fees, and charges, which can include mortality and expense risk charges, sales and surrender charges, investment management fees, administrative fees, and charges for optional benefits. Withdrawals reduce contract benefits and values. Variable annuities are not guaranteed by the FDIC or any other government agency, nor are they guaranteed or endorsed by any bank or savings association.
Only the earnings portion of annuity withdrawals is taxed as ordinary income. Early withdrawals prior to age 59½ may be subject to a 10% federal tax penalty. Surrender charges may also apply during the contract’s early years. Any guarantees are contingent on the financial strength and claims-paying ability of the issuing company. The investment return and principal value of an investment option, also called subaccounts, are not guaranteed. Variable annuity subaccounts fluctuate with changes in market conditions. When an annuity is surrendered, 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.
The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2024 Broadridge Financial Solutions, Inc.