When You Receive Income is Up to You

When purchasing a fixed annuity contract, consider when you will want to receive income from your contract.

• An immediate fixed annuity provides income payments that start shortly after you pay the premium.

• A deferred fixed annuity allows you to build your account value over time and convert it to income in the future.

Fixed annuities have two phases — the build-up phase and the payout phase.

Deferred Fixed Annuities: Two Phases—the Build-up Phase and the Payout Phase

Build-up Phase During the build-up phase (the time between when you start paying premiums and when income payments start), the interest in your annuity will compound on a tax-deferred basis.1 The insurance company guarantees that your annuity will not earn less than a minimum renewal interest rate—regardless of market fluctuations.

Payout Phase (Annuitization)2 There are multiple payout options. You decide which option best suits you. During the payout phase, the time when you start receiving income, the amount of each income payment is generally set when the payments start and will not change. If you decide to take the money in the form of regularly scheduled payments (annuitize the contract), you can choose an option that provides guaranteed lifetime income. You also have the option to receive income payments for an agreed-upon term of years.

Fixed Annuity Income Options

The most commonly available fixed annuity income options are:

• Life income. This option allows the annuitant (that is, the person who is entitled to receive benefits from the annuity) to receive income for life; when the annuitant dies, the payments end.
  
  
• Life income with period certain. This option provides for payments over the lifetime of the annuitant or a set number of years, whichever is longer. If the annuitant dies before the “period certain” ends, the remaining assets are paid to the beneficiary(ies), as scheduled.
  
  
• Period certain only. This option provides for payments to be made for a specific time, usually five to 20 years.|
  
  
• Joint and survivor income. This option provides payments as long as either of the annuitants is alive.

Death Benefit. Most fixed annuity contracts provide that, if you die before the annuity payments start, the contract value will be paid to your beneficiary. Some contracts provide that the death benefit will be the total premiums paid if that amount is greater than the value of the contract at death.

Terminating the Contract (Surrender Benefit). Most fixed annuities allow you to terminate (surrender) your contract if income payments have not yet started. This is referred to as the surrender benefit, which is equal to your contract value less withdrawal charges, if any.

Making Withdrawals—Without Terminating the Contract

Many fixed annuities allow for free withdrawals up to a specific amount—without terminating the annuity.

• However, remember the IRS rule. Withdrawals taken prior to age 59½ may be subject to a 10% federal income tax penalty. And if you withdraw more than the annuity’s permitted penalty-free amounts, you may also have to pay a contractual early withdrawal charge fee.
  
  
• The early withdrawal charge fee is usually a percentage of the value of the contract or of payments made (premiums paid).
  
  
• The percentage may be reduced or eliminated after the contract has been in force for a certain number of years. In other words, withdrawal charge fees often decrease to zero as the fixed annuity nears the end of the withdrawal charge period.
  

Keep in mind, withdrawal charges can reduce the value of your fixed annuity.

Click here to view the Learning about Fixed Annuities Brochure.

Guarantees are subject to the claims-paying ability of the insurance company.

¹ Taxes are due upon withdrawal and withdrawals taken prior to age 59½ may be subject to a 10% federal income tax penalty. Contractual withdrawal charge fees may also apply.

² Annuitization required (the process of converting the fixed annuity into a series of periodic income payments).

Tax-qualified contracts such as IRAs, 401(k)s, etc., are tax deferred regardless of whether or not they are funded with an annuity. If you are considering funding a tax-qualified retirement plan with an annuity, you should know that an annuity does not provide any additional tax-deferred treatment of earnings beyond the treatment by the tax-qualified retirement plan itself. However, annuities do provide other features and benefits such as income options.

Neither The United States Life Insurance Company in the City of New York nor its agents or representatives are authorized to give legal, tax or accounting advice. Please consult your attorney, accountant, or tax advisor.

The Western National series of annuities is issued and underwritten in New York by The United States Life Insurance Company in the City of New York and in all other states by Western National Life Insurance Company.