Annuities explained is a presentation which will explain everything you need to know about the major types of annuities, what are the best annuities and how to select the most appropriate annuity in your particular situation.

1. ANNUITIES EXPLAINED
A Guide to Annuities by Timothy Mobley of The
Baron Group, LLC

2. Overview
 Whether you are trying to maximize the tax
deferred growth of your money without
market risk or guarantee a future income
stream that you will not outlive, or both,
there is a solution which will best fit your
individual goals and objectives.
 There is not “one perfect product” to meet
everyone’s needs and the industry that
offers new products and carriers on an
ongoing basis is constantly evolving.

3. What Are Annuities?
 An annuity describes a contract offered by an
insurance company that allows you to
accumulate funds for retirement on a tax-
deferred basis. Upon retirement, there are a
number of options to receive income from an
annuity that can be guaranteed by the insurer
to last as long as you live.

4. How Do Annuities Work?
 An annuity is an investment vehicle primarily for
accumulating retirement savings or creating a
retirement income. During the accumulation phase,
you pay premiums to the insurer and earn interest on
a tax deferred basis.
 During the second phase, called the Payout phase,
the company pays income to you, or to anyone else
you choose. Unlike many other retirement savings
instruments, you will typically have flexibility in how
you receive your funds. For instance, you can choose
to receive a certain monthly payment that will last until
the money runs out, or choose a certain period of time
that you want to receive you money like a 10-year
payout, 20-year payout, or even a lifetime payout of
income.

5. How Do Annuities Best Serve
Investors?
 The two primary reasons to invest in an
annuity are:
 Saving money tax-deferred for a long-range goal
(like retirement)
 Receiving an income stream for a certain period
of time.
 There are other strategic estate planning
situations where annuities may be warranted
as well. However, these will be dependent on
your specific financial situation.

6. What Are Some Types of
Annuities?
 While annuities might seem complex at first,
they become easier to understand by breaking
them into the following components:
 How money is paid into the annuity contract
 How money is withdrawn
 How the funds are invested
 There are two broad classes of annuities:
 “Deferred” annuities and
 “Immediate” annuities.
Each class has numerous sub-classes.

7. Deferred Annuities
A deferred annuity is most appropriate for people
who want to:

Save for future retirement

Not touch the principal and interest until age 59½
or older

Find an investment that will earn tax-deferred
interest for many years
With a deferred annuity you pay a premium to the
insurance company which issues a contract
promising to pay interest made on the premium
while deferring the income and the taxes until you
actually withdraw the money or begin receiving an
income.

8. Major Types of Deferred Annuities
 There are three major types of deferred
annuities
 Fixed Deferred Annuity
 Equity-Indexed Annuity
 Variable Annuity

9. Fixed Deferred Annuities
 A fixed deferred annuity pays a guaranteed
“fixed” interest rate (based on the current
market rates of interest) where the earnings
compound and grow tax-deferred.
 Fixed annuities offer safety of your principal
from typical day-to-day market fluctuations in
the stock, bond or other investment markets.

10. Equity Indexed Annuity
 An equity-indexed annuity differs from a fixed
deferred annuity in that the rate of return on your
investment is based upon the better of either a)
the growth of a named stock market index, such
as the Dow Jones Industrial Average, S&P 500
index, bond market index or b) a minimum
guaranteed interest rate.
 Many equity-indexed annuities offer you an
interest crediting method that is tied to the index
gains. Still, this type of annuity does allow for
potentially higher returns than a typical fixed
annuity, since you can participate in a rising stock
market or index, yet be protected on the downside
by the minimum guaranteed rate of return.

11. Immediate Annuity
 An Immediate Annuity is most appropriate for those
who want to receive an immediate and predictable
payout. The immediate annuity allows you to deposit
a lump sum and begin receiving regular payments
normally within one year after the deposit. It is usually
funded with a single premium, and purchased by
retirees with funds they have accumulated for
retirement.
 However, with the new Guaranteed Lifetime income
riders that come free or can be added for a fee to
most deferred annuities today, using a deferred
annuity and simply turning on the income rider may be
a better choice. The income rider may produce a
higher monthly income and offer some flexibility and
control which the immediate annuity cannot.

12. What Is The Best Annuity
This question is best answered with other
questions.
 What is the purpose of the annuity?
 What would you like the annuity to accomplish
for you?
Many companies and annuity marketing
organizations will tell you how great their annuity
products are and how strong their features and
benefits are.
The issue is not the product and how well
thought out it may be, but how the annuity
makes sense for your specific situation.

13. How To Select The Best Annuity
 Tips for selecting the best annuity for you:
• Compare the features and rates of different annuity
plans
• Review the annuity provider for service history
• Understand what the guaranteed interest rate is
• Find out if the annuity contract contain surrender
penalties and if so how long are they along with any
fees forgiven in the event of death
• Ask if there are any fees or expenses
• Inquire about options for accessing your funds
• Think if the beneficiary will receive the full value of
the annuity
• Explore with options for income are offered in the
contract