Frequent Annuity Questions

What is an annuity?

Look at it as an insurance contract designed to provide retirement income. The actual definition of the term “annuity” is a stream of payments that is guaranteed (by the issuing company) for a period of time.

How long can an annuity last?

It depends on how it is defined in the contract. It can be one of three ways:

1) for a set number of years

2) until the annuitant reaches a certain age

3) for the life of the annuitant

What are the two phases of a Deferred Annuity?

Phase 1. This is the period of time where you make contributions into the account. Often referred to as the saving or accumulation phase, this is where money goes in.

Phase 2. This is the period of time when you receive money from the account. Often referred to as the income or distribution phase, this is where money comes out.

Note: The length of time between the two phases varies and is defined in the annuity contract that you sign.

What Is a Variable Annuity?

It is a tax-deferred retirement vehicle that allows you to choose from a selection of investments, and then pays you a level of income. The income is determined by your accounts investment performance.

A Variable Annuity can be either immediate or deferred.

A Variable Annuity offers a range of investment options. The value of your investment is dependent upon the performance of the investment options you choose. They are typically mutual funds that invest in stocks, bonds, money market instruments, or some combination of these.

Variable Annuities are tax-deferred. That means you pay no taxes on the income and investment gains from your annuity until you withdraw your money. Make sure to consult with a tax advisor if you are considering this.

You may also transfer your money from one Variable Annuity investment option to another without paying tax at the time of the transfer.

What is a “free look” period for annuity contracts?

Typically, Variable Annuity contracts have a “free look” period of ten or more days. During this period, you have the ability to cancel/terminate the contract without paying surrender charges. If you cancel, you will receive a refund for the amount you paid.

This allows you time to continue to ask questions to ensure that a Variable Annuity is the right choice for your situation.

What is a surrender charge?

A surrender charge is a type of sales charge that applies if you withdraw money from an annuity within a certain period of time, usually six to ten years. This period of time is referred to as the surrender period. The surrender charge will decline over a period of years until it no longer applies.

What is a Life Annuity?

This is a type of annuity that pays for the remainder of a person’s lifetime.

Financial Advice For People About To Retire

The best financial consultants will always advice people seeking for their advice to start planning and saving for their retirement as soon as they have a stable job. As such, even if it’s your first time to work, even if you’re just in your early 20s, you should already have a retirement plan and you are already setting aside money monthly for your retirement fund.

Unfortunately, not all people heed this crucial advice. Many employees always find ways to postpone working on their retirement plan. And before they know it, it will only be 10 years before they have to retire. And usually, planning and preparing 10 years before your retirement is usually not enough for anyone to prepare sufficiently.

However, this doesn’t mean that you give up preparing for your golden years and simply wing it once you stop earning a fixed monthly income. Below are some helpful tips and pieces of advice for people who are near their retirement age so that they can still live comfortably in their golden years:

Prepare your cash reserves or emergency fund. Financial advisors say that you should have at least three to six months of your normal income in an account that is safe and easily accessible. This means having some money deposited in your savings account for all planned expenses. For example, if you know that you need to replace your roof in a few years’ time, you should be setting aside money for that in your savings account.

Resolve your outstanding credit card debt, medical bills, and loans. You should reduce and eventually eliminate all these debts and loans so that your income can be channeled into your personal saving and investment funds which you can use once you retire. Consider checking the interest rates on your credit cards and other loans to see if you can find lower rates as well.

If you have kids, make sure you have already started saving for their college tuition funds. Financial advisers actually say that you should start saving as early as possible after your kids are born, even if you can save only a small amount. As your income rises, you can increase the amount you save for their college funds.

Make sure you already have a retirement plan. Finally, aside from the retirement funds you can expect from work or from the government, consider making the maximum allowable contributions to an individual retirement account. You can get more details about these retirement funds that you can still contribute to from your local financial advisors since different countries, banks, and financial institutions usually offer different schemes or programs regarding retirement funds.

Help Your Employees Save for Retirement

As a small business owner, one of the greatest benefits you can provide to your employees is a way for them to save for their financial future. Offering a retirement plan is an important part of the total compensation package that helps you compete for and retain talented people. Keep in mind that employer contributions to a retirement plan are a deductible business expense.

As an employer, you have flexibility in choosing a plan or combination of plans that work for your business. Broad categories include:

Defined benefit plans

A defined benefit plan, such as a traditional pension plan, is something you could consider for your employees. The plan enables you to make annual contributions, which can be adjusted each year. Some plans feature the option to automatically increase annually, allowing you to reward employee loyalty. The plan pays out a specified benefit to retired employees.

Defined contribution plans

A defined contribution plan allows the employee, the employer or both to contribute to an individual account for the employee. A 401(k), the most common defined contribution plan, allows the employee and employer to make consistent, tax-deferred contributions. Participants choose investments which have the potential to grow tax-deferred. These plans allow annual contributions of up to $18,000 in 2015 and 2016, the ability to borrow from the plan to cover emergency needs, and “catch-up” contributions of an additional $6,000 a year for those age 50 and older. Employers have flexibility to establish vesting schedules or options such as a Roth 401(k), funded by after-tax contributions but with the potential to provide for tax-free withdrawals in retirement. Although just as with pre-tax contributions, a Roth 401(K) comes with required minimum distributions.


There are two types of individual retirement accounts (IRAs), which allow you to make tax-deferred contributions. One option, a Simplified Employee Pension (SEP) IRA, is one of the easiest and least costly plans to create. 100 percent of the contributions are made by the employer and are immediately vested for the employee. In 2015 and 2016, the maximum contribution can be 25 percent of an employee’s salary up to a total contribution of $53,000. It’s not possible to set up a Roth version or to offer loan provisions.

A SIMPLE IRA is a second option you can use if your business has less than 100 employees. Like a SEP, it’s easy to establish and administer, and the plan requires employers to match the employee’s contributions. In 2015 and 2016, the maximum contribution to a SIMPLE IRA for an individual is $12,500, with an additional $3,000 allowed for those age 50 and older.

Don’t forget about your own retirement

As a small business owner, it’s important to understand all of your options when it comes to saving for your retirement and helping your employees save for their financial future. While you may be hoping that the proceeds from the future sale of your business will provide for your retirement, you could be putting your future at risk if you’re not saving in another vehicle. A lot could happen between now and then that could affect the value of your business or your ability to sell it. Establishing a retirement plan may provide a more secure source of future retirement income. Consider working with a financial advisor who specializes in small business retirement plans. A professional can help you make the best choice for you, your employees and your business.