Annuities offer you guaranteed income for life—in any market.
SCHWAB UPDATE
NEW YORK STATE COVID-19 INSURANCE AND ANNUITIES UPDATE
A recent Executive Order issued by Governor Cuomo, together with recent amendments to the insurance and banking regulation (the "regulations") issued by the New York State Department of Financial Services ("Department"), extends grace periods and gives you other rights under your life insurance policy or annuity contract if you can demonstrate financial hardship as a result of the "novel coronavirus" ("COVID-19") pandemic. These grace periods and rights are currently in effect but are temporary, though they may be extended further.
To learn more, you can view a copy of the Executive Order.
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Effective July 27, 2020, new $100,000 minimum for all annuity contracts offered through Schwab. This change is designed to ensure that we are operating at the highest service level in the midst of the current conditions. This change impacts all annuity products on or after July 27th and is subject to change. This does not impact additional purchase payments into existing annuity contracts. For more information, contact an annuity specialist at 866-663-5241.
Annuities are contracts between you and an insurance company that can provide valuable insurance features, while certain types of annuities offer a unique combination of both insurance and investment features. Annuities complement other retirement plans and, depending on what type you select, they may provide guaranteed lifetime income, opportunities for tax-deferred growth, guaranteed yield, market participation, flexible withdrawals, and legacy protection for your beneficiaries.
Keep in mind that Schwab's variable annuity fees are 30%—48% below the industry average.¹
Questions about annuities? Contact an annuity specialist at 866-663-5241.
Understanding Annuities
Retirement is changing, with pensions less common,
and increased market volatility the new normal.
You may ask whether it's still possible to have steady income in retirement that you can't outlive and the comfort that comes with it.
Annuities could be the answer.
There are different types of annuities and like all investments, each comes with its own pros and cons.
When used appropriately, they can be a powerful tool that offers unique benefits that can complement social security and the rest of your income strategy.
In this video, we are going to look at two types of annuities: immediate fixed annuities, sometimes known as income annuities, and deferred variable annuities. We'll give you the straight facts on how they work and what to look out for and then you can talk to your financial consultant to see if they're a good fit for you.
Immediate fixed annuities can be great if you're already retired and looking for immediate, reliable monthly income that won't vary with market fluctuations and doesn't require managing.
Here's how it works: You pay a lump sum, a premium to an insurance company, in exchange for monthly payments to last a specific period, such as 5, 10, 20 years or for the rest of your or your spouse's life.
The insurance company determines that amount of income you receive based on a number of factors, including life expectancy, interest rates, and the distribution options you selected.
You can choose to start receiving payments immediately.
Fixed annuities lock in a fixed payment amount. This provides guaranteed income that doesn't depend on market returns. So, you don't benefit when the market goes up, or lose out if the market drops.
There are some tradeoffs with an immediate fixed annuity. If, for example, while protected from outliving your money, you may not live long enough to recoup your premium. Also, once payments start, you typically cannot terminate the contract for a refund of premium.
Now let's talk about deferred variable annuities. Deferred variable annuities can be a good option if you are nearing retirement. This type of annuity allows you to keep your money working until you need it, with the option to convert it to guaranteed income once you retire.
Here's how it works. You invest an amount choosing from a variety of investment options available within the annuity.
Then, once you're retired, you can convert the value of that portfolio into a stream of lifetime income.
Bear in mind that the performance of the underlying investments you select will determine the overall value of the account that you will be drawing from, which may end up more or less than the amount initially paid into the annuity. If you worry about a big market decline jeopardizing those investments, many annuities also offer a useful option known as a guaranteed lifetime withdrawal benefit rider. For an additional fee, this GLWB rider can help protect your retirement income from downturns in the market, while still allowing you to realize growth if the value of the investments in your annuity increases over time. And provided the amount you withdraw each year is not in excess of the amount allowable by the GLWB rider, the payments can last for life, even if you deplete all of the funds in your annuity.
Variable annuities with GLWB riders are complex, so it's a good idea to talk to a Schwab financial consultant and review the details closely before purchasing. Also, different companies offer different features for both types of annuities. So, do your research to fully understand both the benefits and the risks involved.
Whether you are nearing retirement or already there, annuities can help ensure your savings are built to last. Should annuities be a part of your retirement plan?
Talk to us at a Schwab branch near you or visit Schwab dot com forward slash annuities.
Understanding Annuities
See how an annuity may fit with your long-term retirement income plan.
Which annuity is right for you?
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Variable Annuities
Stay invested in the market with the potential to grow your retirement savings and receive guaranteed income.
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Fixed Indexed Annuities
Receive principal protection with the potential for growth at an attractive rate, and if needed, get income for life.
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Single Premium Immediate Annuities
Get guaranteed monthly income for the rest of your life.
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Deferred Income Annuities
Get guaranteed monthly income for the rest of your life at a future date you select.
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Fixed Deferred Annuities
Lock in a guaranteed, competitive rate of return; any interest you earn is tax-deferred.
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Guaranteed income for life
Get an income annuity estimate in just a few simple steps.
All guarantees are based on the financial strength and claims-paying ability of the issuing insurance company (not Schwab).
Annuity Frequently Asked Questions
- How do annuities work?
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When purchasing an income annuity, your assets become a guaranteed income stream for life, or for a specific period of time. Many clients purchase income annuities to cover their essential expenses, as defined by them, in retirement. For an additional cost, income annuities may offer a cost-of-living adjustment, increasing your income each year, to help address inflation risk.
Charles Schwab offers two types of income annuities: single premium immediate annuities and deferred income annuities. The key difference between these two product types is when income begins. For single premium immediate annuities, income generally begins "immediately", whereas for deferred income annuities, the income doesn't begin for at least 13 months after your last premium payment, but may be deferred by up to 40 years.
Fixed annuities, sometimes referred to as fixed deferred annuities, provide guaranteed asset growth at a fixed rate for a specific time period. The growth is tax-deferred, which can help you accumulate more assets instead of paying taxes during the accumulation phase, and your assets are protected from market uncertainty. If you elect to receive guaranteed income, you can choose income for life or for a specific time period.
Fixed indexed annuities provide principal protection with the option for fixed rate returns (similar to a fixed annuity), or capped growth dependent on a preselected market index over a specific period of time, and you are not directly invested in the market. If the index is up, then yield is credited to your account up to a capped percentage. If the index is down, then your principal will not lose value (i.e., 0% return). The growth is tax-deferred, which can help you accumulate more assets instead of paying taxes during the accumulation phase. If you elect to receive guaranteed income, you can choose income for life or a specific time period.
With a variable annuity, investments, often called sub-accounts, are chosen from within the annuity. The performance of the investments determines the value of the account, and subsequently the amount of income you will receive. The growth of the investments is tax-deferred, which can help you accumulate more, instead of paying taxes during the accumulation phase. The performance of the underlying investment options is subject to market fluctuation and are not guaranteed. If you elect to receive guaranteed income, you can choose income for life or for a specific time period.
Guarantees are subject to the financial strength and claims-paying ability of the issuing insurance company.
- What is the difference between fixed, fixed indexed, and variable annuities?
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A fixed annuity provides principal protection with the stability of a fixed, guaranteed rate of return. Fixed indexed annuities offer principal protection with the opportunity to earn an attractive capped rate of return based a preselected market index, without investing directly in the market. Variable annuities do not offer principal protection, but offer the potential for uncapped growth with the ability to participate in the market through a variety of professionally managed portfolios.
- What kinds of annuities does Charles Schwab offer?
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Charles Schwab offers income annuities (single premium immediate annuities and deferred income annuities), fixed deferred annuities, fixed indexed annuities and variable annuities.
Income annuities provide guaranteed lifetime income or income for a specific period of time that you choose. A single premium immediate annuity provides income "immediately." A deferred income annuity provides income at a future date that you select.
Fixed deferred annuities deliver guaranteed growth and principal protection of your assets.
Fixed indexed annuities may provide (a) principal protection of your assets, (b) market-capped growth, (c) guaranteed lifetime income, (d) guaranteed death benefit options, and (e) tax-deferred growth potential.
A Variable annuity provided through Schwab offers (a) low costs, with no surrender charges2 and base annuity fees that are 30%-48% below the industry average1 (b) guaranteed lifetime income, (c) guaranteed death benefit options, (d) a variety of investment options, and (e) tax-deferred growth potential. - When might an annuity be a good option for your situation?
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Depending on your needs, annuities may be a good addition to your financial plan.
Income annuities may be a fit if you're seeking a guaranteed, steady stream of income you can't outlive. The guaranteed lifetime income may help cover essential expenses in retirement, as defined by you, regardless of how long you live. If you need income "immediately", a single premium immediate annuity may be right for you. If you need income in the future, a deferred income annuity may be more appropriate.
Fixed deferred annuities may be a good fit if you are looking for guaranteed growth, principal protection, and have other funds for liquidity needs (at least three to ten years).
Fixed indexed annuities allow you to protect your principal with the opportunity to generate market-capped growth, and may provide protection of lifetime income for you and your spouse with an optional guaranteed lifetime withdrawal benefit,3 available for an additional cost. Additionally, fixed indexed annuities provide the potential for tax-deferred investment growth and, with an optional death benefit, may provide you with the confidence in knowing your assets are protected for your beneficiaries.4
A Variable annuity provided through Schwab offers low costs, with no surrender charges2 and base annuity fees that are 30%-48% below the industry average1. They also offer the protection of a guaranteed lifetime withdrawal (GLWB) rider, at an additional cost, which can provide guaranteed lifetime income based on your original investment or gains. Additionally, variable annuities provide the potential for tax-deferred investment growth, and, with an optional death benefit, may provide you with the confidence in knowing your assets are protected for your beneficiaries4.
A Schwab Annuity Specialist can help you determine which annuities would fit your financial plan. If you already have an annuity and feel it may not be meeting your current needs, a Schwab Annuity Specialist can perform an analysis to determine whether it may make sense to exchange your current annuity with one at Schwab.
Before deciding to replace your existing contract, however, please consider any surrender charges on your existing contract; possible loss of guaranteed benefits; differences in features, costs, services, and company strength; and other factors which could reduce or eliminate the benefit of the exchange. - What should I be aware of?
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Annuity fees will vary depending on the product. Typically, you will see insurance charges (which pay for the guarantees that the insurance company provides), surrender charges (charges on an early withdrawal based on the time period of the policy or cancellation of the policy), investment fees (which pay for the management of the underlying investment options), and fees for optional living benefits or optional death benefits.
Withdrawals from an annuity will reduce the value of your annuity, withdrawals of taxable amounts are subject to ordinary income tax, and withdrawals may be subject to a market value adjustment. Also, note that withdrawals prior to age 59½
may be subject to a 10% federal tax penalty.
The performance of the underlying investment options of a variable annuity is subject to market fluctuation and is not guaranteed.
A Schwab Annuity Specialist can help you determine which annuities may fit your retirement strategy.
- How are annuities taxed?
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Annuity earnings are tax-deferred during the accumulation phase, which means you do not pay taxes on any earnings each year; you pay taxes on earnings only when you withdraw your money. Any withdrawals of taxable amounts are taxed as ordinary income, and you may be subject to a 10% federal tax penalty if you take withdrawls before age 59½.
- How do annuities compare to other retirement options?
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Charles Schwab offers various financial tools to help you with your retirement and planning. Work with your Financial Consultant to determine which product or products are a good fit for you.
- How might annuities benefit my heirs?
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Many annuities have standard death benefits and optional death benefits. Optional death benefits are available for an additional cost.
An account value death benefit will provide your beneficiaries the amount of your remaining contract value, if any.
A return of premium or purchase payments death benefit provides your beneficiaries with the greater of the account value or the total premium payments less withdrawals. Premium taxes may apply.
A stepped-up death benefit offers you the potential to lock in market gains for your beneficiaries. Adjustments are made for additional premium payments and withdrawals.
A roll-up death benefit guarantees an annual growth rate credited to your contract for your beneficiaries. Adjustments are made for additional premium payments or withdrawals. - What goes into getting an annuity?
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A Schwab annuity specialist can help you determine which annuities may fit your retirement strategy.
Already own a Schwab annuity?
Before considering an exchange of your current annuity, carefully consider surrender charges on your existing contract, loss of guaranteed benefits, and differences in features, costs, services, and company strength, as well as other factors that could reduce or eliminate the benefit of an exchange.
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