Using Living Benefits for Retirement Income

In a 2011 study by the National Institute on Retirement Security, 84% of respondents expressed concern that current economic conditions could affect their ability to retire comfortably, and 73% said stock market volatility makes it difficult to predict how much they could save by retirement.¹ Clearly, uneven market performance has increased anxiety about having an adequate retirement income.

Pensions once offered a stable income for a large percentage of retirees, but this has changed dramatically. In 1975, almost nine out of 10 private-sector workers had a traditional pension, compared with just one out of three in 2005.²

Purchasing the guaranteed living benefits that are available with some variable annuities (for an extra cost) is a potential way to establish a predictable income stream. Some investors may find that the increased stability may be worth the cost of these guarantees.

Guaranteed minimum accumulation benefit. The value of the annuity will not fall below a certain amount (usually equal to the amount of premiums paid, regardless of market performance) after a specified term.

Guaranteed minimum income benefit. The income payment will be based on the greater of the actual contract value or a minimum amount. Benefit payments can begin after a specified waiting period.

Guaranteed minimum withdrawal benefit. A percentage of the annuity premiums paid can be withdrawn annually for a defined period of time (including life, if specified), regardless of market performance.

A variable annuity is a long-term investment vehicle designed for retirement purposes. There are contract limitations, fees, and charges associated with variable annuities, which can include mortality and expense risk charges, sales and surrender charges, investment management fees, administrative fees, and charges for optional benefits.

Withdrawals reduce an annuity’s living and death benefits and values. Variable 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. Withdrawals of annuity earnings are taxed as ordinary income and may be subject to surrender charges plus a 10% federal income tax penalty if made prior to age 59½. Any guarantees are contingent on the claims-paying ability of the issuing company. The investment return and principal value of an investment option are not guaranteed. Because variable annuity subaccounts fluctuate with changes in market conditions, the principal may be worth more or less than the original amount invested when the annuity is surrendered.

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.

1–2) National Institute on Retirement Security, 2011

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. 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 Emerald. © 2011 Emerald Connect, Inc.

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Investors should consult with their own professional advisor regarding the potential tax, estate, and legal considerations that may arise in connection with entering into a life settlements transaction. Proceeds from a life settlement transaction may be taxable under federal or state law to the extent the proceeds exceed the cost basis. The proceeds from a life settlement transaction may be subject to claims of creditors. The receipt of proceeds from a life settlement transaction may adversely impact eligibility for government benefits and entitlements. The amount received for the sale of the Policy may be impacted by the circumstances of the particular purchaser of the Policy, the insured’s life expectancy, future premiums, the death benefit, the terms of the Policy, and the current market for insurance policies, among other factors. The amount received for the sale of the Policy may be more or less than what others might receive for the sale of a similar policy. There may be high fees associated with the sell of a Life settlement.

Any tax advice contained herein is of a general nature and is not intended for public dissemination. Further, you should seek specific tax advice from your tax professional before pursuing any idea contemplated herein. This advice is being provided solely as an incidental service to our business as a financial planner.