Do you know the two things most people fear in retirement? One is they will not have enough money in retirement. The other is inflation will erode their income, forcing them to reduce their standard of living. Annuities may help address these two concerns.
Non-qualified variable annuity products take full advantage of tax-deferred compounding. Contributions to non-qualified variable annuities are not tax-deductible, but earn tax-deferred interest until withdrawn.1 Variable annuities can provide periodic retirement funds to you and your beneficiary under a variety of distribution options. One income option unique to variable annuities is the option to receive payments that will last a lifetime.2 This means, in return for a sum of money, an insurance company will guarantee payments as long as you live. Electing to take payments for a specified period of years is another income option. Payments, whether lifetime or for a specified period of years, can be fixed or vary with the performance of an underlying investment.
Another income option available under variable annuities is to systematically withdraw money. While this approach provides liquidity, the investor also assumes the risk of running out of money. If investment earnings are not enough to live on, principal must be withdrawn to make up the difference. It is difficult to predict how long the money will last, since it is dependent on both investment performance and one's longevity.
Because annuities have many different features, there are a number of factors to examine before you buy. For example, are there penalties for early withdrawals? Are there graduated withdrawal charges over a period of years? How much can you withdraw at any one time without a penalty?
In addition, if you are considering the purchase of an annuity, you should ask:
- What is the current interest rate and how often does it change?
- What is the minimum interest rate guaranteed in the contract?
- Is there a "bail-out option" that permits you to cash in the annuity, without withdrawal penalties (there may be tax penalties), if the interest rate drops below a specified figure?
- Are there load charges or annual administrative fees? How much are they and how will they affect your return?
Variable annuities provide the flexibility to structure a retirement income program to suit individual needs. Income can be based on one or a combination of payment methods. Regardless of the method chosen, the income feature of a variable annuity can be a key component of your overall retirement income program.
For questions about a specific annuity product, or to learn how an annuity can be part of your retirement program, contact a Northwestern Mutual Financial Network Representative* for assistance.
Variable Annuities are offered and sold by prospectus only. 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 prospectus that will contain the information noted above, and other important information that you should read carefully before you invest or send money.