Deferred annuities supplement retirement income, allowing you to put unlimited after-tax dollars into tax-deferred structures. Taxes on earnings become due upon distribution, not before. An annuity statement is an annual or quarterly update on the cash value and investment performance of your deferred annuity.
Annuity Identification Information
The standard information found on your annuity statement includes identifying information about your annuity contract. Identifying information is your name, address and account number. The statement is sent by the insurance company holding the contract and should include contact information for customer service at the insurance company directly and for your annuity sales representative.
Overview of Annuity Contract Terms
The annuity statement also includes a summary of the contract terms, including the name of the owner and the annuitant. Annuities are long-term contracts, and reviewing the terms occasionally helps ensure you are properly planning your financial future and estate. Owners are responsible for the financial implications of the contract, including the taxes on the account distributions.
The annuitant is the person to whom the contract benefits are paid according to life events. If the annuitant dies, death benefits are paid to beneficiaries. The owner and annuitant can be the same person. The start date is also listed in the contract overview. The start date is when the annuity automatically begins regularly-scheduled payments if payments are taken prior to this date.
Investments and Performance
Deferred annuities offer different investment options. Fixed annuities offer specified rates of return with minimum interest rates. Rates renew on the anniversary date and are guaranteed for the next 12 months. Variable annuities use mutual funds so investors can create a portfolio.
The statement should explain the performance of your specific annuity. Fixed annuity statements list the amount earned, existing cash value and the interest rate. Variable annuity statements list the performance of the mutual funds for that period, as well as state the existing cash value in each fund.
Frequency of Annuity Statements
Annuity companies usually send statements once per year or every three months depending on the type of annuity. Fixed annuities only adjust rates once per year and, therefore, reduce expenses to investors by only generating an annual statement. Variable annuities fluctuate in value and require more management; therefore, statements are generated every three months.
Some annuity companies may send statements more often. Up-to-date information is always available by calling the customer service number between statements.
What Are the Different Types of Annuities?
There are many different types of annuities to suit different needs. Some of the common types of annuities include:
- Variable: They carry more risk but also have the highest earning potential
- Registered-index linked: They carry a lesser risk and have the potential for high earnings which is dependent on the index growth
- % fixed: Earnings are based on a determined interest rates
- Immediate: They earn income instantly by converting a lump sum into streams of income
- Fixed indexed: They earn income based on the index but also offers protection from losses
How Do Annuities Work?
Annuities are issued by insurance companies in which an individual purchases premiums to cushion themselves from a loss of income. After purchasing the premiums, the individual receives the money in batches and payments are usually long-term.
Most annuities allow you to:
- Continue making investments
- Receive instant payments or at a later date
- Earn returns based on the type of annuity you choose. It can be fixed, indexed, or variable
What Are the Benefits of Annuities?
Based on the type of annuity you choose, you’ll enjoy the following benefits:
- Provides an alternate way to save: You can opt to buy annuities to earn you income immediately or in the future. This can be additional money that goes towards your retirement or for a rainy day.
- Helps you catch up: They can help you when you’re saving for your retirement and time has caught up with you.
- Offers growth potential: Annuities offer periodic income over a long time or even for life
With more than 15 years of professional writing experience, Kimberlee finds it fun to take technical mumbo-jumbo and make it fun! Her first career was in financial services and insurance.