The Basics of Annuities
Is an annuity
right for you?
Ask these questions:
Are you concerned about outliving your income or         Will you need t...
Annuities . . . what are they?
An annuity, generally, is a payment received at regular intervals.

Annuity contracts, typi...
Annuities…part of a well-diversified
A well-diversified retirement portfolio can create the level of income you want durin...
retirement portfolio                                                             The Mutual
Northwestern Mutual Financial Network (NMFN) is the marketing name for the sales and distribution
arm of The Northwestern ...
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Annuity Brochure


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Is an annuity right for you?

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Annuity Brochure

  1. 1. The Basics of Annuities
  2. 2. Is an annuity right for you? Ask these questions: Are you concerned about outliving your income or Will you need the money before you reach 59 1/2? maintaining your lifestyle during retirement? Annuities are designed to be retirement vehicles. Therefore, if you make a withdrawal before age Accumulating funds in a deferred annuity during 591/2, the IRS may subject you to a 10 percent early pre-retirement years can help minimize a gap in income withdrawal penalty in addition to any applicable throughout your retirement years. Both immediate and ordinary income tax. Contractual withdrawal charges deferred annuities offer a variety of income options, may also apply. including a guaranteed lifetime income option that can complement or supplement other sources of income you may have. Are you currently in a higher income tax bracket than you expect to be in after you retire? If you have an employer-sponsored retirement If so, deferring payment of income taxes until you plan, such as a 401(k) or SIMPLE IRA, have you actually withdraw the funds after your retirement may contributed the maximum? work to your advantage because you may be in a lower tax bracket at that time. These types of plans allow for tax-deductible contributions and can provide tax-deferred growth. If you have maxed out contributions to your 401(k) and IRA, and want to save more for retirement on a tax-deferred basis, an annuity may be appropriate. IRS contribution limits do not apply to non-tax-qualified annuities.
  3. 3. Annuities . . . what are they? An annuity, generally, is a payment received at regular intervals. Annuity contracts, typically considered long-term investments, are sold by life insurance companies. You can establish an annuity contract to put aside money for retirement or provide yourself with a regular stream of income in retirement. When it comes to making sure you are financially prepared for retirement, annuities can be very powerful vehicles. They provide the means to accumulate funds on a tax-deferred basis, which can make a significant difference in your ability to achieve the lifestyle you envision for yourself throughout this potentially very active stage of life. How an annuity works Types of annuities In exchange for either a single deposit or a series There are two basic types of annuities – of deposits you make into your annuity, the insurance company promises to make a series of An immediate annuity is funded by a single deposit that payments to you out of the annuity … payments is converted into a steady stream of income that will you can use to supplement your income after commence immediately. you retire, or while you transition from partial to A deferred annuity is funded by either a single deposit full retirement. or a series of deposits and has two distinct phases: the ‘deferral’ phase, during which time your money can The guarantees in an annuity are backed solely accumulate on a tax-deferred basis, and the ‘income’ by the claims-paying ability of the insurance phase, when your contract values are converted into a company and should be a key consideration in stream of income. making your purchase decision. – and, your immediate or deferred annuity can be either fixed or variable. • Fixed: The rate of return is set and guaranteed for a specific time by the insurance company. This type of annuity may appeal to you if you have a more conservative approach to retirement or are looking for a vehicle to serve as a conservative portion of your retirement portfolio. • Variable: The rate of return varies based on the investments that you choose. Variable annuities typically offer numerous investment options, can help diversify a retirement portfolio, and can be allocated according to your risk tolerance level. The performance of variable funds is not guaranteed and can fluctuate. Because variable annuities are investment products, they are sold by prospectus, which will be provided to you by your financial representative.
  4. 4. Annuities…part of a well-diversified A well-diversified retirement portfolio can create the level of income you want during retirement. Attaining the level of income you want can be challenging because retirement today is vastly different from what earlier generations experienced, on a number of levels. • The retirement years are now thought of in terms of activity, enjoyment, adventure, and fulfillment – rather than years of rest. • The fact that people are now living longer presents the challenge of making sure your income will last as long as you do. • Traditional sources of income from pensions and Social Security may not be sufficient to fund the retirement lifestyle you want. Fewer people have access to pensions. In 1992, more than 32% of workers were covered by a defined benefit plan from their employer; now, only about 20% are.1 In addition, Social Security replaces only about 27% of a person’s pre-retirement income for high-wage earners and 40% for average earners.2 • Annuities provide a way to accumulate money on a tax-deferred basis, and they create a stream of income that can be used to fund your active retirement years. The stream of income from your annuity can complement or supplement other sources of income. 1 Monthly Labor Review, Trends in Retirement Plan Coverage Over the Last Decade/February 2006 2 EBRI: 2006 Retirement Confidence Survey Fact Sheet Annuity features and benefits Both fixed and variable annuities can offer: • Tax-deferred growth. The interest on fixed annuities, as well as the increase in value of variable annuities, • A variety of income options to allow you to structure is not subject to taxation until withdrawn. This can your retirement income according to your needs. be especially appealing if you expect to be in a lower • Guaranteed lifetime income options, for you alone income tax bracket after you retire. or you and a joint beneficiary, to address the risk of Variable annuities are distinguished from fixed annuities outliving your assets or leaving your survivor without because they offer: income. • Multiple investment options offering professional • The option to receive income for a specific number management. Variable annuities offer a number of of years that you choose, instead of over your investment fund options which are managed by lifetime. This can be attractive to people who want dedicated and experienced professionals. This allows to supplement their income during the early years your assets to be allocated to match your investment of their retirement when they expect to be more goals, time horizon, and risk tolerance. active, especially if they have other resources that will become available at later life stages, such as from the • Variable investments that provide the potential to liquidation of property or other assets. keep pace with inflation. • A guaranteed death benefit for your heirs. Deferred • Tax-free, cost-free transfers of assets between annuities provide a guaranteed death benefit. If the owner available investment funds. dies before converting the contract values into an income stream, the direct beneficiary will receive the amount • Variable income plan options.* deposited into the annuity, minus any withdrawals * Note: The performance of variable funds is not guaranteed. No – or – the contract value, whichever is greater. investment strategy can guarantee a profit or protect against a loss.
  5. 5. retirement portfolio The Mutual Northwestern Annuities … how they are taxed Financial Network The income plan payments received from a non tax-qualified annuity Advantage are derived from a combination of principal and earnings. The principal portion is not subject to taxation. The earnings portion of each payment, called ‘gain,’ is subject to income tax in the year received. This type of Because the guarantees in annuities are only income payment spreads the potential tax liability over a number of years. as good as the claims-paying ability of the insurance company that backs them, the Because tax-qualified annuities are generally funded with pre-tax dollars, track record of the company should be a key each income payment is fully subject to taxation in the year received. factor in your purchase decision. One alternative to converting your deferred annuity contract values into a guaranteed income plan is to take partial withdrawals. For The Northwestern Mutual Financial a non tax-qualified annuity, taking partial withdrawals results in Network’s reputation is built on the solid all taxable gain being taken out of the contract before the tax-free foundation of The Northwestern Mutual principal. For a tax-qualified annuity funded only with pre-tax Life Insurance Company, which was founded dollars, all of the partial withdrawal is subject to income tax. in 1857 and is one of the most respected If you choose not to convert your deferred annuity into an income insurance companies in operation today. plan, and instead surrender it for a lump sum of cash, the entire gain Northwestern Mutual has received the best in the contract would be subject to income tax in the year of surrender. possible insurance financial strength ratings Because both non tax-qualified annuities and tax-qualified annuities from all four major rating agencies: were designed as retirement vehicles, the federal law that applies to annuities discourages annuity owners from taking money out of an A++ A.M. Best June 2009 annuity before retirement age. For example, withdrawals, surrenders, AAA Fitch Ratings June 2009 or income payments taken from an annuity before the owner has AAA Standard & Poor’s June 2009 reached age 59½ may be subject to a 10 percent early withdrawal Aaa Moody’s Investors Service April 2009 penalty tax, in addition to ordinary income tax. Third-party ratings are subject to change. Third-party ratings are a measure of a company’s relative financial Retirement arrangements are subject to a variety of IRS rules with strength and security but do not reflect the performance regard to eligibility, adoption, annual reporting, and taxation. The of variable funds. The performance of variable funds is tax treatment of traditional IRAs and other qualified retirement not guaranteed and can fluctuate so that the value of your contract can be more or less than your original investment. arrangements, including income tax deferral on the earnings, is the same regardless of the funding vehicle chosen. Under the Northwestern Mutual Financial This information is provided for educational and/or promotional Network, we have set a standard for client purposes. It does not contain legal or tax advice and is not service that goes above and beyond what intended to be and cannot be used to avoid any penalties under the you may have come to expect from a U.S. federal tax law. You should always seek tax advice regarding financial services provider. We believe in your particular circumstances from an independent tax advisor. working for you, and with you, to help you meet your needs for financial protection and Typical Costs accomplish your immediate and long-term financial security goals. In choosing an annuity product that will best serve your needs, it is also important to take the costs into consideration. Quality is exemplified in the products, investment options, and services we offer. Fixed Annuities: Typically, there are no additional charges or fees because the current interest rate is net of the expenses. We are committed to providing service and support as long as you need us. Variable Annuities: As is the case with all investment products, expenses and fees may apply and vary from insurance company to insurance company. The most common are mortality and expense fees, portfolio fees, and contract fees. Withdrawal charges typically apply in the early years of a deferred fixed or variable contract and are deducted from amounts you withdraw. Contact your Northwestern Mutual financial The cost for any available optional benefits and riders offered with the representative today to learn more about the annuity would be deducted, in addition to the fees previously mentioned. role annuities can have in your retirement portfolio.
  6. 6. Northwestern Mutual Financial Network (NMFN) is the marketing name for the sales and distribution arm of The Northwestern Mutual Life Insurance Company (Northwestern Mutual), Milwaukee, WI, and its subsidiaries and affiliates. All securities are offered through Northwestern Mutual Investment Services LLC, (NMIS), Suite 600, 611 E. Wisconsin Avenue, Milwaukee, WI 53202, 1-866-664-7737. Member FINRA and SIPC. NMIS is wholly owned by Northwestern Mutual. Variable contracts have limitations. This material must be preceded or accompanied by a current prospectus or offering circular. You should carefully consider the investment objectives, risks, expenses and charges of the investment company before you invest. Your Northwestern Mutual Investment Services Registered Representative can provide you with a contract, a fund prospectus or offering circular that will contain the information noted above, and other important information that you should read carefully before you invest or send money. 92-0530 (0208) (REV 0609)