Annuities

Definitions of Annuities Fixed Account credited with a fixed interest rate Held in the insurance companies general account Need insurance license to sell Variable Deposits purchase “shares” called accumulation units (similar to a mutual fund) Assets are held in a separate account Need insurance license and security license (Series 6 or 7) to sell Upon annuitization, the annuitant receives a fixed amount of annuity units Annuity A contract with an insurance company to accumulate money on a tax deferred basis (No tax while in the annuity) Annuitize Give up access to your accumulated dollars in exchange for a stream of payments. Categories of Annuities Immediate OR Deferred Annuitize nowDo not annuitize now (maybe later) AND

Funding of Annuities Immediate Deferred YES Lump Sum YES NO Fixed Installments YES NOPeriodic Payments (deposits) YES JAN 15th $100 FEB 15th $100 MAR 15th $100 APR 15th $100 MAY 15th $100 JUN 15th $100 JUL 15th $100 AUG 15th $100 SEP 15th $100 OCT 15th $100 NOV 15th $100 DEC 15th $100 JAN 15th $50 FEB $ 0 MAR 30th $100 APR $ 0 MAY 25th $200 JUN $ 0 JUL $ 0 AUG 15th $100 SEP $ 0 OCT $ 0 NOV 20th $100 DEC 30th $200

Annuity Accumulation FixedVariable Cost: Investment charges & mortality charges Many different accounts to choose from for specific allocations Accumulation Units “shares” can change daily (like a mutual fund) Cost: Usually no annual fee Interest Rate – Current rate guarantee w/ Minimum rate guarantee May also receive “bonus” rate Two Tiered Fixed Interest with a “mirror” Account (bigger interest rate) with a designated time frame (7-10 years) If annuitized, annuitant can use the bigger account to draw payments. Equity Indexed Assigned a “Cap” Rate (ex: 7%) ( Upside potential with no risk of losing principal)

Annuity Distribution Uncle Sam Insurance Company Taxes / Penalties Contract Charges / CDSC’s Beneficiary is taxed on any gain as ordinary income Gain comes first LIFO (Last In First Out) 10% - Penalty – If prior to age 59 ½ Loans not recognized by IRS No 10% penalty if you annuitize over annuitants lifetime. Exclusion Ratio = Investment in contract Expected Return* *Expected Return = Annual Amount received x Life Expectancy (IRS table 590) Generally no surrender charge Decreasing surrender charge or Market Value surrender charge – higher surrender charge if interest rates have increased -lower surrender charges if interest rate have decreased None Death Partial Withdraw Annuitize

Annuitizing Options Life Payout Temporary Payout Guaranteed payments for life of the Not based on annuitants life - but on either: annuitant – they cannot out live payments If joint annuity – payments stop at Specific Time (ex: 5,10,15,20 years, etc.) first death. or If joint and survivor annuity - Specific Amounts (ex: $X,XXX per: mo, yr, etc.) payments stop at last death. (for however long it takes for balance to be paid) Options: A) Minimum TIME guarantees (Period Certain) can be added at a cost (causing lower payments) ( the longer the minimum time guarantee - the lower the payment.) B) Minimum AMOUNT guarantees (Refund Annuity) Can be added at a cost (lower payment) - balance of initial premium amount is paid to beneficiaries (either in installments or lump sum) if annuitant dies before initial premium amount is paid out.