Did You Know?
- That, as of the first quarter 2011, the combined net assets of U.S. variable annuities were valued at nearly $1.6 trillion, an 11% increase from first quarter 2010 and the highest level ever recorded?
- In 2010 fixed annuity assets were valued at $659 billion a 6% increase from 2009?
- That in 2010, the total average expense difference between variable annuities and mutual funds was 1.01%?
- In 2011, the contribution limits range from $5,000-$6,000 for an IRA, $16,500-$22,000 for a 401(k) and $200,000 plus for a non-qualified annuity?
- That the average number of funds per variable annuity contract was 50 in 2010, of which 47% of assets were invested in equities, 11% in bonds, and 20% in fixed-rate accounts?
- That the guaranteed lifetime withdrawal benefit was offered on 79% of variable annuities in 2011 and was elected by 65% of contract holders?
- Boomers who own annuities have a higher confidence in retirement expectations, with 92% believing they are doing a good job in preparing for retirement?
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Frequently Asked Questions (FAQs)
The Insured Retirement Institute's mission is to provide financial advisors, the media, regulators, and other interested parties with information and resources to assist in a better understanding of annuities. The following are answers to frequently asked questions.
By exercising the annuitization option of a deferred annuity (or by purchasing an immediate annuity), the contract owner can transfer the longevity risk to the insurance company and, if a fixed annuity is chosen, the investment risk as well.
While much of the focus on annuities in recent years has been on their value as a savings vehicle for retirement, their value as a source of lifetime income during retirement is equally important. Traditional sources of guaranteed retirement income are diminishing at the same time retirees are living longer, more active lives.
Deferred annuity contracts permit the contract owner to surrender the annuity contract during the accumulation period and receive a cash payment from the insurance company. This amount is called the cash value or cash surrender value of the contract. It equals the sum of premiums paid plus any earnings, minus prior withdrawals and charges deducted.
Until recently, principal protection under variable annuity contracts was offered only in the case of death. Insurers now offer living protection against investment risks under variable annuity contracts by guaranteeing the level of a variety of different benefits.
If a contract owner or annuitant dies in the accumulation phase, a deferred annuity contract will usually provide a death benefit rider protecting the account and payable to a named beneficiary. Sometimes the contract may name a new annuitant to take the place of the deceased annuitant. The contractual payout of this benefit varies by policy and can be payable as a lump-sum payment or as periodic annuity payments.
With a fixed annuity, the owner is guaranteed at least a minimum rate of investment return. An indexed annuity is a fixed annuity that typically provides the contract owner with an investment return that is a function of the change in the level of an index, such as the S&P 500, while guaranteeing no less than a stated fixed return on the investment. With a variable annuity, contract owners are able to choose from a wide range of investment options called subaccounts, each of which generally invests in shares of a single underlying mutual fund or, in some cases, in a "fund of funds," which is a mutual fund that invests in several other mutual funds or in exchange-traded funds (ETFs).