As today’s challenging economic environment continues to stir up Americans’ retirement nest eggs, there’s a growing demand for investment vehicles that provide stability and support to meet long-term needs in retirement. While annuities have been around for decades, investors are increasingly looking to this investment vehicle to convert their retirement savings into a reliable source of lifetime income.*  

* LIMRA International’s News Center: Data Bank/ 1Q 2009 Industry Annuity Net Flow Estimates

Although it’s possible to outlive the assets in other retirement savings vehicles, annuities provide the option of a steady stream of income you can’t outlive. Another advantage of variable annuities? You can make unlimited contributions into a personal non-qualified annuity with after-tax dollars while earnings accrue tax-deferred until withdrawn at retirement. Variable annuities are designed to be long-term investments to meet retirement and other long-range goals so keep in mind that money withdrawn before age 59 ½ could incur a 10% IRS penalty.

As is the case with most investment products, expenses and fees apply and vary from insurance company to insurance company.  The most common are mortality and expense fees, portfolio Fees, and contract fees.

Withdrawal charges typically apply in the early years of a deferred fixed or variable annuity contract and are deducted from the amounts you take out. The cost for any available optional benefits and riders with the annuity would be added in addition to the fees previously mentioned.

Variable annuities are investment products sold by prospectus.  The prospectus provides information about the costs, fees, and charges.

All guarantees in an annuity are backed by the claims-paying ability of the issuer.

The Case for Annuities

With all the investment choices available today, why should investors put money into a variable annuity? As a retirement savings alternative, variable annuities offer a multitude of advantages, including:

-    Tax-deferred growth
-    A guaranteed benefit at death
-    Guaranteed lifetime income options
-    Portfolio rebalancing is tax-free within a variable annuity

They also make it easy for investors to create and maintain a well-diversified investment program in a single contract. That’s because most variable annuities offer a choice of investment subaccounts that typically include a range of asset classes (such as stock, bond and money market funds and a guaranteed interest option), investment styles (such as growth and value), fund families and investment managers. Investing in a mix of asset classes and investment styles may help lessen the impact of market volatility on your overall portfolio.

Automatic rebalancing keeps your account on track

Financial experts recommend rebalancing investment to match your financial objectives at least once per year. Because asset classes perform differently, a portfolio can stray from its original asset allocation over time. Under current tax law, an annuity allows for asset transfer without tax implications.  

Many variable annuities offer a rebalancing feature that can help keep your annuity’s asset allocation consistent with your risk profile by automatically reallocating assets at regular intervals such as monthly, quarterly or annually.

Does a variable annuity belong in your portfolio?

While each investor differs in their choice of personal investment goals and strategies, few would argue the importance of putting their assets to work in the most productive manner possible.

With your retirement future at stake, it’s a good idea to talk with a financial professional to decide which investments are most appropriate for your particular situation. It is also important for investors to note that the choice of one type of investment does not exclude another. For many, having both taxable and tax-deferred investment options within one’s total investment portfolio may be beneficial.

For questions about specific annuity products, contact the insurance company directly or ask a financial services professional.


Article prepared by Northwestern Mutual with the cooperation of Kanan Sachdeva.  Kanan Sachdeva is a Financial Advisor with Northwestern Mutual the marketing name for The Northwestern Mutual Life Insurance Company (NM), Milwaukee, Wisconsin, and its subsidiaries.  Kanan Sachdeva is an agent of NM based in Southborough, MA.  Securities offered through Northwestern Mutual Investment Services, LLC, member FINRA and SIPC. To contact Kanan Sachdeva, please call (781) 248-8640, e-mail at kanan.sachdeva@nm.com or visit kanansachdeva.com.  This information should not be used as a basis for tax or legal advice. Your tax or legal advisor should be contacted for guidance regarding your specific situation.

Kanan Sachdeva can provide you with a contract and fund prospectus which outlines the investment objectives, risks, charges, and expenses of the investment company and other important information. Carefully read the prospectus and consider this information before investing. This information should not be used as a basis for tax or legal advice. Your tax or legal advisor should be contacted for guidance regarding your specific situation.

|