Contact Information
Jo-Ann M. Dobson
Managing Director/President Oppenheimer Life Agency Ltd.
Phone: (212) 668-5890
joann.dobson@opco.com
Oppenheimer & Co. Inc.
85 Broad Street
New York, NY 10004
What is an Annuity
What is an Annuity?
An annuity is a contract between an investor and an insurance company. Annuities can help investors accumulate assets for retirement on a tax deferred basis, as well as provide lifetime income and death benefits.
What Benefits do Annuities Offer in Retirement?
• Annuities offer investors the ability to diversify their overall portfolio according to their risk tolerance through the use of living benefits, death benefits and tax deferral.
• Annuities are the only investment that can provide a guaranteed* lifetime stream of income during retirement**. This can provide a comfort level which can ease concerns about outliving current retirement savings. This income can also increase over time.
• Annuities provide various death benefit options for clients concerned with wealth transfer.
• Annuities do not go through the probate process.
• Non-Qualified annuities are the only investment vehicle to offer tax deferred growth which can help clients defer taxes until they are retired and in a lower tax bracket.
Types of Annuities
Fixed Annuity
A fixed annuity is a contract between an investor and an insurance company, where the contract owner receives a fixed rate of interest based on the amount invested and the maturity date. The longer the maturity date is, the higher the interest rate usually is. Interest credited to a fixed annuity is not taxed until it is withdrawn. The tax rule on nonqualified withdrawals is that interest and earnings are taxed first as ordinary income. In addition there is a 10% Federal tax penalty on interest and earnings withdrawn before age 59 ½.
Immediate Annuity
An immediate annuity is a contract between an investor and an insurance company where the contract owner begins receiving payments immediately or within one year after the contract is issued. Immediate annuities are generally purchased with a lump sum investment which provides a monthly income for life. There are different payout options to choose from depending on the client’s retirement needs. Non-qualified money invested in an immediate annuity is returned in equal tax free installments over the payment period. The balance of the amount received is treated as earnings and taxed as ordinary income.
* Any payment guarantees are based on the claims paying ability of the insurance company.
** Source: 2010 Annuity Fact Book
Variable Annuity
A variable annuity is a long-term contract between an investor and an insurance company. The first phase of the contract is the “accumulation” phase, where the investor makes either one lump sum payment or a series of payments to the insurer. Payments made into the contract are typically allocated into the available investment options. The rate of return on the investment options depends on their performance. Variable annuities allow investors to receive periodic payments, which is known as the payout phase. These payments can be made over a specific period of time or over the investor’s lifetime, which can offer protection from outliving their retirement savings. Variable annuities offer unique living benefit riders which provide principal guarantees or growth even in a down market. The actual contract value is not affected by these guarantees; there is a separate “benefit” value on which the guarantees are based. Variable annuities also provide a death benefit in the event the owner or annuitant dies before the insurer begins the periodic payments. The beneficiary would then receive a death benefit payout. Variable annuities may also be tax deferred on non-qualified money. The annuitant does not pay taxes on any income earned until withdrawals begin, which are taxed at ordinary income tax rates. In addition, there is a 10% Federal tax penalty on earnings withdrawn before age 59 ½.
Variable Annuity Expenses/Fees
- Mortality and Expense Fees (M&E) and Administrative Expenses –
These charges give the contract holder certain guarantees such as, the ability to choose a payout option, a death benefit and a promise that annual insurance charges will not increase. Some variable annuities also charge an annual contract fee under a certain amount. - Additional Cost of Riders – The cost of any living benefits or enhanced death benefits selected by the contract holder.
- Fund Management Fees – The cost of the investment options selected.
Frequently Asked Questions About Annuities
What are the Benefits of a Fixed Annuity?
• They offer a guaranteed fixed rate of return.
• They offer a fixed maturity date.
• They can provide a lifetime income.
• Non-qualified annuities provide tax deferred growth.
What are the Benefits of a Variable Annuity?
• They provide a wide variety of investment choices depending on the client’s risk tolerance.
• They offer the ability to invest in the equity markets with lifetime income guarantees.
• They offer guaranteed death benefits and avoid probate.
• Non-qualified annuities provide tax deferred growth.
• Contracts can be customized to each client’s needs.
What You Need to Know Before Buying an Annuity
There are many different fixed and variable annuities to choose from, and they should be considered long term investments. Before the purchase of an annuity, the following questions should be considered:
• How old is the investor?
• Is income needed, and if so, when should it start?
• How much should be invested?
• What guarantees does the annuity offer?
• How much are the fees on the annuity?
• How much risk is acceptable?
• What are the annuity riders?
Ask your Oppenheimer Financial Advisor for more information on the different annuity products offered through Oppenheimer and how they may fit into your overall investment portfolio.
Before purchasing an annuity, please review both the insurance carrier and the annuity contract carefully before investing. Any payment guarantees are based on the claims paying ability of the issuing insurance company and that those guarantees do not apply to the investment return or principal value of the underlying funds in the annuity contract.
Variable annuities are sold by prospectus only, which describes the risks, fees and surrender charges that may apply. Investors should consider the investment objectives, risk and charges of the investment company carefully before investing. The prospectus contains this and other information. You may obtain a prospectus from your Oppenheimer Financial Advisor. Please read it carefully before investing.