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IMMEDIATE ANNUITY – HYPOTHETICAL EXAMPLE

Note, like on the current page the calculator below is a screen shot and not a working calculator:

Unlike deferred annuities where deposits can be made over time, or deposited funds can be left in the account to grow, an immediate annuity does not have an "accumulation" period. This means the income withdrawals from this type of annuity generally begin as soon as the contract has been established.

Because an immediate annuity begins paying income immediately (or soon after a deposit has been made), the annuity income amount will depend on interest rates at the time of purchase, as well as the payout options you choose, such as the frequency (monthly or annual payments) and the duration (life, joint life, term). For example, if you were to choose the Life Only income option, the annuity would generate an income for the remainder of your life - regardless of how long that may be.

We know this can be confusing and have helped hundreds of annuity owners understand their contracts. For help, contact one of our investment professionals from the Contact Us page.

By walking through a hypothetical example, you will be able to estimate the amount of income you might expect to receive from an immediate annuity. In this example, we will select a 20 year “Withdrawal Period”, 3% interest for the “Annual growth rate during withdrawals”, and a “Starting Principal” amount of $100,000. Because there is no deferred growth with an immediate annuity we enter “0” for the “Annual Growth rate”, “Annual Fee and Expense rate,” and “Growth Period”

Given these assumptions, the annuity would provide an approximate annual income of $6,722 for 20 years, or a total of $134,431 in income over the total time period.

Receiving $134,431 from the original $100,000 deposit may sound good, but for an investor that needs more in order to sustain a certain quality of life in retirement there may be better options.

In fact, because a large portion of the income is a return of principal, the average return over the full 20 years in this illustration works out to about 1.5% per year. With long term inflation averaging 3% 1, income from the annuity could actually provide LESS purchasing power than the original $100,000 does today.

It is important to note that annuities can be highly complex financial vehicles with many moving parts, so it is essential to understand how these products work and where they could fit into your overall financial plan. With this in mind, before you purchase an annuity you should ensure it’s the right product for you.

1 Source: Global Financial Data, Inc. as of 2/5/2013. The Consumer Price Index (CPI) averaged 2.97% over the period 12/31/1925 –12/31/2012.

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