Answers to Your Questions
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Have questions about fixed deferred annuities? You're not alone. Below are answers to some common questions.
What makes fixed deferred annuities safe?
The money in a fixed deferred annuity grows at a guaranteed minimum interest rate. In contrast, the value of a variable annuity may be based on stock market performance. In a variable annuity, your money is not guaranteed to grow.
What interest rate will I earn?
When you buy your annuity, you'll receive the credited interest rate your company offers on the purchase date. After an initial guarantee period, the rate on your policy renews each year. Your rate will never fall below the minimum interest rate stated in your annuity contract.
How do I know I'm buying an annuity from a company I can trust?
As with any big purchase, it's helpful to research the company to ensure it has a solid, long-standing financial history with a conservative investment strategy. Insurance companies use their assets to guarantee your principal will always grow at a guaranteed minimum interest rate. Look for financial strength ratings on company websites to ensure you're dealing with a reputable provider.
What are the tax advantages of a fixed deferred annuity?
The money in your annuity accumulates on a tax-deferred basis. That means you do not pay taxes on your earnings until you withdraw the money. Because of tax deferral, your money may grow faster in an annuity than it might in a similar, taxable investment.
How is a fixed deferred annuity different from a CD I buy at my local bank?
If you did not purchase your CD as part of your Individual Retirement Account (IRA), your earnings are taxable the year you earn them, even if you don't take the money out of the CD. With fixed deferred annuities, your interest grows in your account and is not taxed until withdrawals begin - possibly giving you faster growth and control over when you pay the taxes.
In addition, many annuities give you the option to withdraw a portion of your money annually without charges after the first year. If you need access to the money in your CD before it matures, you will likely have to pay a penalty.
Is there a way that I can access my money without penalties?
On most fixed annuities, you can access a portion of your money each year after the first year without any charges.1 You will have to pay taxes on the money you withdraw. Some annuities may give you access to all of your money in the event of serious health conditions.
After a certain length of time called the 'surrender period,' most fixed annuities will allow you to access your money whenever you choose, provided you meet minimum withdrawal requirements.
You may also choose to receive automatic withdrawals on a regular basis, such as annually, quarterly or monthly. In those cases, you have complete control over the timing of payments, but you have no protection against outliving your money.
Another option is to exercise an important benefit of fixed deferred annuities and turn your money into a guaranteed stream of income that will last as long as you live. If you choose this option, you will receive guaranteed payments for the rest of your life.
Withdrawals taken before age 59½ may be subject to a 10% federal tax penalty as well as tax on any gain in the contract.
What if I die before I begin receiving my payments?
In the event of your death, your annuity's account value will be paid directly to your beneficiary.
Fees and withdrawal charges
What are withdrawal charges, and why do fixed deferred annuities have them?
A withdrawal charge is a penalty you pay for withdrawing your money before a certain amount of time has elapsed. This amount of time is called the surrender period. The penalty, or withdrawal charge, is usually a percentage of your annuity's value at the time of withdrawal.
Since annuities are designed to be long-term investments, a withdrawal charge provides an incentive to keep your money with a company for an appropriate period of time. This consistency helps companies plan investment strategies, and in turn offer you, the annuity owner, the best rate possible on your money.
Are there any up-front or ongoing sales charges associated with a fixed deferred annuity?
Unlike other types of investments, fixed deferred annuities do not have up-front or ongoing sales charges.
Life insurance and annuities issued by:
Liberty Life Assurance Company of Boston, a Liberty Mutual company
Home office: Boston, Mass. Service center: Dover, N.H.