A variable annuity (VA) is a tax-deferred retirement savings vehicle sold by an insurance company. When an individual purchases a VA, he or she can choose to invest assets in a variety of subaccounts. Investment options available in these subaccounts include stocks, bonds, alternative investments, and money market funds. Because the contract value is determined by the value of the subaccounts, it will fluctuate over time.
Variable annuities may benefit individuals with a long-term investment horizon who are seeking growth potential not typically associated with traditional fixed income assets. For an additional fee, VAs also provide certain guarantees that cannot be found with other investments, such as a minimum death benefit, contractual death benefit growth, and lifetime income. Individuals interested in purchasing a VA contract must be able to handle the associated market risk. Additionally, they should understand that all VA contract features and benefits are predicated on the insurance company’s claims-paying ability.Tax-Deferred Growth:
Not having to pay taxes until the funds are needed provides an opportunity for compound growth.Return of Premium Death Benefit:
On most VA contracts, when withdrawals are not taken, the standard death benefit is the total premium paid or the current contract value at death, whichever is higher.Choice of Investments:
Growth is tied to the performance of the selected subaccounts. VA products have various subaccount options, and the contract owner retains the ability to reallocate among available choices at his or her discretion.Guaranteed Lifetime Income:
For an additional fee, individuals can generate guaranteed income for life by selecting optional guaranteed lifetime withdrawal benefits. Guarantees are based upon the claims-paying ability of the insurance company.Enhanced Death Benefits:
For an additional fee, individuals can choose a growing death benefit and/or provide opportunities to lock-in the death benefit based on contract performance.Beneficiary Protection:
VA assets avoid probate by passing directly to named beneficiaries.
Insurance Company Strength:
VA assets are typically invested in subaccounts and are backed by each individual subaccount position. Any optional riders that carry their own fees are guaranteed by the claims-paying ability of the underlying insurance company. They are not protected by FDIC or SIPC.Surrender Schedules:
VA surrender schedules typically vary from three to nine years. Annuities are long-term investments intended for retirement. They are not appropriate for short-term goals and needs.Risk of Decline:
If the selected underlying investments decline, the annuity contract value will also decline.Fees:
In addition to subaccount and rider fees (if a rider is selected), VAs have mortality and expense plus administration (M&E + A) fees. This covers the insurance company’s risk of unpredictable outcomes, such as early death, conversion to lifetime income, and administrative costs.
Guarantees are only as strong as the company backing the guarantees. All guarantees discussed herein are subject to the claims-paying ability of the issuing insurance company. Guarantees do not apply to the safety or performance of assets invested in the various subaccounts. Certain conditions, limitations, and restrictions may be associated with a particular annuity benefit. In addition to the optional benefits discussed herein, there may be other optional VA benefits available to help you pursue your goals. You should consult with your Stifel Financial Advisor to see if a variable annuity with optional benefit features is right for you.Investors should obtain a prospectus for an annuity’s contract and the underlying subaccounts and consider the investment objective, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other important information, is available from your Financial Advisor and should be read carefully before investing. Variable annuities are not insured by the FDIC or any government agency and involve market risk, including the possible loss of principal. Variable annuities are suitable for long-term investment and entail fees, such as mortality and expense charges and optional benefit rider charges.
Annuities are long-term financial vehicles designed for retirement purposes. All withdrawals of taxable amounts, including earnings, are taxable as ordinary income.
Withdrawals may be subject to surrender charges, and if made prior to age 59 ½, may be subject to a 10% federal tax penalty. Withdrawals reduce the cash surrender value.
Stifel does not offer legal or tax advice. Clients should consult their legal and tax advisors before taking actions that may have legal or tax consequences.