Help diversify your retirement strategy with an annuity

Annuities are financial products that guarantee a steady stream of retirement income. They offer tax-deferred growth potential while you’re saving for retirement, and dependable income after you retire – in some cases, income for life.

What is an annuity?

An annuity is simply a contract between you and an insurance company. You pay the insurance company one or more purchase payments (“premium”). In exchange, you get the benefits the insurance company guarantees through your annuity contract.
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Accumulation potential
Some annuities have the potential to earn interest based on the growth of an external index (we call this “indexed interest”). You can choose one or more external indexes every year (or “allocation options”), depending on your financial goals. Other types of annuities offer growth potential through variable investment options.
Tax-deferred growth
You don’t have to pay income taxes on the earnings in your contract until you take money out of your annuity. Tax deferral may help the money in your annuity compound over time, for even greater accumulation potential.
Level of protection
Annuities can help protect the money you place in your contract (the “principal”). Some annuities protect all of your principal from market downturns, while others offer greater potential in exchange for some market risk, including the risk of losing principal.1
Retirement income
After a period of time specified by your contract, annuities provide guaranteed retirement income. Some annuities let you choose from a variety of income options – and some even offer the opportunity for income increases in retirement. These options may either be built in to the contract or optional and available for an additional cost.2

Learn the basics of annuities

Annuities can help address some common financial concerns, from helping you save for retirement and providing a level of protection for your retirement savings to helping address inflation and longevity.

Why consider an annuity?

Annuities are designed to complement other financial products as part of your overall retirement strategy. They offer important features and benefits that can help you accumulate for retirement, supplement your retirement income, and even help diversify your portfolio. (However, remember that diversification does not ensure a profit or protect against loss.)

Frequently asked questions

How much should you pay for an annuity?

If an annuity is a good fit for you, the purchase amount will depend on your financial needs and goals. Annuities are a long-term contract, so it’s important to be sure you won’t need the money for other financial commitments or unexpected expenses. Your financial professional can help you determine whether an annuity makes sense as part of your overall retirement strategy, and in what amount.

How are annuities taxed?

Some common retirement-account tax rules apply to annuities – but not all of them. Let’s begin with tax deferral: Because the money you place in an annuity grows income-tax-deferred, you don’t have to pay income taxes on any interest or gains until you take money out of your contract. Any distributions from your annuity will be taxed as ordinary income. But – as with IRAs, 401(k)s, and pension plans – if you take money out of your annuity before age 59½ you’ll have to pay an extra 10% federal additional tax on top of any ordinary income tax. Please consult your tax advisor for guidance about your unique situation.

Are there required minimum distributions (RMDs) on annuities?

Nonqualified annuities (those held outside a retirement account) are not subject to RMDs beginning at RMD age. That’s because nonqualified annuities are purchased with money on which you have already paid income taxes. However, if you purchase an annuity within an Individual Retirement Account (IRA), you’ll have to take RMDs beginning at RMD age. You should also be aware that some annuity contracts require you to start distributions at a certain age (generally between 85 and 100) – so it’s important to ensure that the contract meets your long-term goals. A tax advisor can help you understand the tax implications of buying an annuity.

Do annuities tie up your money?

There are different kinds of annuities. Some give you immediate access, while others have a waiting period. Contracts that require waiting a specific period of time before you take money out are called deferred annuities. Typical deferral periods can range from three to 10 years. After the deferral period, you can annuitize the contract (this means you start receiving money through scheduled lifetime payments, or “annuitization”). Some annuities also let you take free withdrawals during the deferral period, up to specified amounts. But it’s important to understand your contract – because if you take out more money than it allows before the deferral period ends, you will likely incur a surrender or withdrawal charge and market value adjustment (MVA).

What is a market value adjustment?

A market value adjustment (MVA) is a calculation we use to adjust your annuity’s withdrawal amount. An MVA may adjust the withdrawal amount up or down, depending on the interest rate conditions when you take distribution(s) compared to those conditions when you contributed your premiums. But while the MVA can affect your withdrawal amounts, it can never cause your contract’s cash surrender value to be less than the guaranteed minimum value or greater than the accumulation value.

What are some typical criticisms of annuities?

There are a lot of questions about annuities, their purpose, and their cost. The fact is, annuities aren’t right for everyone. It’s also true that some annuities charge fees in exchange for the benefits they offer. But for people who want the opportunity to accumulate for retirement, a level of protection from market volatility, and guaranteed lifetime income, annuities can be a valuable addition to their overall financial portfolio.

Why do insurance companies sell annuities?

Annuities help protect some of your retirement assets in the same way you protect your car, your home, and your health. In each of these cases, you’re transferring away some of the risk of financial loss to an insurance company. Annuities operate on the same principle: A fixed index annuity offers the potential to build some of your money with protection from market downturns, plus income payments during retirement – and tax deferral and a death benefit during the accumulation phase. Index variable annuities offer the opportunity for a level of protection through a variety of crediting methods (which may also be called index strategies).

Which annuity may meet your needs?

Allianz offers two types of annuities to address your unique financial needs and retirement goals: fixed index annuities and index variable annuities. Annuities are complex products, and it’s important to understand the balance between their features and factors. A financial professional can help you decide whether an annuity is appropriate for your needs.

1 A level of protection may be provided by benefits that are either built into the contract or through optional riders at an additional cost.

Variable investment options are subject to investment risk, including possible loss of principal. This means investment returns and principal value will fluctuate with market conditions so that units, upon distribution, may be worth more or less than the original cost.

Although an external index may affect the interest credited, you cannot buy, directly participate in, or receive dividend payments from any of them through the insurance product.

Withdrawals will reduce the contract value and the value of any protection benefits. Withdrawals taken within the contract withdrawal charge schedule will be subject to a withdrawal charge. All withdrawals are subject to ordinary income tax and, if taken prior to age 59½, may be subject to a 10% federal additional tax.

Purchasing an annuity within a retirement plan that provides tax deferral under sections of the Internal Revenue Code results in no additional tax benefit. An annuity should be used to fund a qualified plan based upon the annuity’s features other than tax deferral. All annuity features, risks, limitations, and costs should be considered prior to purchasing an annuity within a tax-qualified retirement plan.

Guarantees are backed by the financial strength and claims-paying ability of the issuing company. Variable annuity guarantees do not apply to the performance of the variable subaccounts, which will fluctuate with market conditions.

• Not FDIC insured • May lose value • No bank or credit union guarantee • Not a deposit • Not insured by any federal government agency or NCUA/NCUSIF

Products are issued by Allianz Life Insurance Company of North America and variable products are distributed by its affiliate, Allianz Life Financial Services, LLC, member FINRA, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297.

Product and feature availability may vary by broker/dealer.