Annuities

What is an Annuity?

An annuity is a contract with an insurance company that, in exchange for a purchase payment and fees, agrees to pay you income for a specified period of time or for the rest of your life. Starting at retirement, or any other date you choose, you receive regular income payments based on the value of the annuity. The issuing insurance company guarantees your payments. This provides a type of insurance for your retirement income.

Annuities allow you to invest money on a tax-deferred basis. On non-qualified assets, this means you don’t pay taxes on any gains until they are withdrawn, so your money can compound and grow faster than in a taxable account. Also, by the time you are ready to begin withdrawing from your annuity, you may be in a lower tax bracket.

What Type of Annuity is Right for Me?

That depends on your specific financial situation, marital status, projected income needs, etc. One key issue is timing. In general, annuities fall into two categories: immediate or deferred. As the name implies, immediate annuities begin providing income soon after they are purchased, usually within a year. The insurance company guarantees payments for a specified period of time or for life. However, only the portion of your income payment that represents interest is subject to taxation.

Deferred annuities, on the other hand, allow your contributions to grow over time on a tax-deferred basis, and then pay out benefits later — after you have retired, for example. While deferred annuities are typically designed to be long-term investments, the contracts allow you to access at least a portion of your money annually without a charge. However, withdrawals of any gains are taxed as regular income and, if taken before age 59½, a 10% federal tax penalty may also apply.

Types of Annuities

	Potential Benefits	Who Should consider
Deferred Annuities	Tax-deferred savings	Investors looking for an additional tax-deferred way to save for retirement
Deferred Variable Annuity	Wide range of variable investment with growth potential options	Investors who are comfortable with potential earnings that will fluctuate based on investment performance
Deferred Indexed Annuity	Guaranteed minimum accumulation value with equity index-linked returns potentially higher than fixed rates	Investors who want a protected investment floor with the ability to partake in the potential benefits of a market-linked vehicle
Deferred Fixed Annuity	Guaranteed fixed rate of return	Investors looking for tax-deferred investments that offer protection from market volatility
Immediate Annuities	Purchased with a single payment, provides income that begins right away	Investors who want to use their accumulated savings to provide a stream of retirement income
Variable Income Annuity	Guaranteed lifetime income payments with growth potential to help keep pace with inflation	Investors looking for income that has the potential to grow over time Investors who can withstand fluctuations in their income based on investment performance
Fixed Income Annuity	Guaranteed lifetime income with pension-like steady payments	Investors looking for a guaranteed income stream

Deferred annuities can be fixed, indexed or variable:

Find out more about variable annuities and fixed annuities:
Read Understanding Variable Annuities(PDF)

1The Standard & Poor’s 500 Composite Stock Price Index (S&P 500) tracks the performance of the 500 largest publicly-traded securities.

Morgan Stanley Smith Barney LLC offers insurance products in conjunction with SBHU Life Agency, Inc.

Variable annuities are sold by prospectus only. The prospectus contains the investment objectives, risks, fees, charges and expenses, and other information regarding the variable annuity contract and the underlying investments, which should be considered carefully before investing. Prospectuses for both the variable annuity contract and the underlying investments are available from your Financial Advisor. Please read the prospectus carefully before you invest.