Frequently asked questions about annuities

frequently asked questions about annuities

1. WHAT IS AN IMMEDIATE ANNUITY?

Generally, an immediate annuity is a long-term contract between an annuitant(you) and an insurance company for which the annuitant makes a one-time, up-front premium payment to the insurance company. The insurance company converts the premium assets into a stream of guaranteed monthly income payments for life or a specific fixed period of time. As the name implies, an immediate annuity provides income immediately after the premium is received, typically within 30 days from the date of deposit. However, the annuitant can choose to defer payments for up to 12 months after the date of purchase.

A TGT 401(k) participant can also obtain a low-cost immediate annuity by rolling money over from his or her TGT 401(k) account into the Target Pension Plan.

2. WHO SHOULD CONSIDER PURCHASING AN IMMEDIATE ANNUITY?

Immediate annuities can play an important role in your retirement. Regular monthly income payments for life help you more effectively budget for your long-term expenses. It takes the stress and worry out of when and how much to draw down your savings accounts. While each individual case is different, most financial planners generally recommend annuitizing at least some of your savings. If you are nearing or in retirement, or have a lump sum of money that you want to turn into a secure stream of income, you may want to consider an immediate annuity in your retirement planning process.

3. WHAT IS THE DIFFERENCE BETWEEN AN ANNUITY PURCHASED THROUGH THE INCOME SOLUTIONS? ANNUITY PROGRAM AND A 401(K) TO PENSION ROLLOVER ANNUITY?

The Income Solutions? Annuity Program generally provides more flexibility and types of annuities for purchase with your 401(k) dollars. On the other hand, the 401(k) to Pension rollover generally provides more monthly income per dollar annuitized, because of a lower cost structure. However, it does not offer certain special features such inflation-adjusted annuities or fixed period only annuities. Another important difference is that an annuity chosen through the Income Solutions? Annuity Program is purchased from an insurance company that participates in the Program. Annuity payments you receive as a result of a 401(k) to Pension rollover are paid by the Target Pension Plan.

See the "Comparing Annuity Options" document also posted on this Web page for more details and to view a chart that offers a side-by-side comparison of the two programs.

4. WHAT ARE THE ADVANTAGES OF OBTAINING AN ANNUITY DIRECTLY WITH MY 401(K) DOLLARS RATHER THAN ROLLING MY 401(K) OVER INTO AN IRA AND THEN PURCHASING AN ANNUITY AS AN INDIVIDUAL?

The biggest advantage of utilizing one of the TGT 401(k) options to obtain an annuity directly is the fact that you are able to receive a substantially lower-priced annuity. This means you will receive noticeably higher annuity payments than you could obtain with the same amount of money if you were buying an annuity as an individual. In addition, utilizing one of the direct options available in the TGT 401(k) is a fast, convenient way to purchase an annuity.

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5. HOW DO I KNOW WHICH TYPE OF ANNUITY IS RIGHT FOR ME?

? Determine your objective by asking yourself some of the following questions:

o Are you concerned about outliving your retirement assets?

o Do you want to receive income payments for a fixed period (i.e. 5, 10, 15, or 20 years) or for the rest of your life?

o Will your spouse, significant other or dependents need income after your death?

? Explore the 401(k) to Pension Rollover by reading the brochure and obtaining an estimate of the monthly payments you would receive

? Link to the Income Solutions? Web site also posted on this Web page to explore..... the on-line tools and resources to understand the types of annuities offered and to model potential income streams from the different types of annuities offered. You can also obtain on-line quotes from multiple insurance companies to find out what your monthly payments will be with a certain type of annuity.

? Consult with your tax advisor, accountant or financial planner for help in evaluating your financial situation.

6. HOW DO I DETERMINE HOW MUCH MONTHLY INCOME I WILL NEED IN RETIREMENT?

Many financial experts estimate that you will need between 60 to 90% of your pre-retirement income in order to maintain the same standard of living during retirement years; however this will vary by individual needs and circumstances. Speak with your tax advisor, accountant or financial planner in evaluating your entire financial picture.

7. WHAT DOES IT MEAN THAT THE 401(K) TO PENSION ROLLOVER PRICING IS UNISEX WHEREAS THE INCOME SOLUTIONS? ANNUITY PROGRAM IS GENDER-SPECIFIC?

One factor that determines the dollar amount of your annuity payment is your life expectancy, that is, how long you are likely to live beyond the current point in time. Since women tend to live longer than men, gender-specific pricing will provide women a smaller amount of monthly income, since their lump sum of savings with which they purchased the annuity will most likely need to be spread over a longer period of time. On the other hand, Unisex pricing blends the life expectancies of men and women to an average life expectancy, resulting in somewhat lower payments to men and somewhat higher payments to women than gender-specific pricing would provide.

8. WHY DO THE QUOTES I OBTAIN THROUGH THE INCOME SOLUTIONS? ANNUITY PROGRAM CHANGE OVER TIME?

Each time you request a quote, the insurance companies you have selected submit their bids based on supply and demand and current interest rates, which can fluctuate daily. For example, you may receive a different annuity amount quoted by the exact same insurance company simply by requesting your quote a week or a month later than the original quote you requested. Therefore it may be prudent to request quotes multiple times and from multiple insurance companies before you actually purchase an annuity.

9. HOW MUCH OF MY SAVINGS SHOULD I ANNUITIZE?

You can choose to annuitize just a portion of your 401(k) account or other assets rather than your entire savings. You can even decide to annuitize portions over time, for example, 20% of your 401(k) account one year and another 20% the next year. If you have concerns that you may get a better income quote if you wait another year, this strategy will help you spread your annuity purchases over time and mitigate the point-in-time risk of one large annuity purchase.

One strategy that financial planners often suggest is to annuitize enough of your savings to generate a monthly paycheck that pays for basic recurring expenses such as food, rent, and medical premiums for the rest of your life. This strategy matches your known monthly expenses with known monthly income, while still allowing you to purchase discretionary items with your non-annuitized savings.

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10. SHOULD I CONSIDER PURCHASING MULTIPLE ANNUITIES RATHER THAN JUST ONE? Purchasing multiple annuities from different providers at several different points in time may be a wise strategy because this allows you to diversify your retirement savings. Your income will be provided by several different insurance companies as well as potentially the Target Pension Plan. Purchasing at different points in time also allows you to spread out your interest rate risk by receiving different annuity streams determined at various interest rates, some of which may be more favorable to you. 11. WHAT HAPPENS TO MY ANNUITY PAYMENTS IF I DIE? This depends on the type of annuity you purchase. Immediate annuities can be structured to provide continued income to your joint annuitant or a survivor death benefit to your beneficiary. If you choose one of these forms, you will receive somewhat lower monthly annuity payments than if you had chosen a single life annuity. If you choose a single life annuity, the annuity payments will end upon your death. 12. WHAT IS THE DIFFERENCE BETWEEN AN ANNUITY AND LIFE INSURANCE? An annuity has often been described as the opposite of life insurance due to the fact that an annuity pays income during your lifetime, whereas life insurance generally pays a benefit to your beneficiary after your death. With an annuity, the insurance company bears the financial burden if the annuitant lives longer than expected. 13. WHAT IS THE DIFFERENCE BETWEEN A JOINT ANNUITANT AND A BENEFICIARY? If a joint & survivor annuity is purchased, a joint annuitant is the person named to continue receiving benefit payments upon the annuitant's death, depending on the annuity type purchased. Depending on the type of annuity, the joint annuitant's gender and age are also used to determine how long benefits are payable. A joint annuitant is also a co-owner of the annuity, and after a purchase is made, the joint annuitant cannot be changed. A beneficiary is a person named to receive a lump sum death benefit or monthly payments after the annuitant and/ or joint annuitant's death, if applicable. A beneficiary is not a co-owner of the annuity, and your beneficiary election may be changed any time. 14. IF I PURCHASE AN ANNUITY WITH MY 401(K) ASSETS, HOW AND WHEN WILL I PAY

INCOME TAXES? The purchase of the annuity with before-tax TGT 401(k) assets, whether through a rollover to the Target Pension or by selecting an annuity through the Income Solutions? Annuity Program, does not trigger any immediate income tax. However, ordinary income tax will be due on your annuity payments in each year that you receive annuity payments. Since an annuity is considered a series of substantially equal periodic payments according to the Internal Revenue Code, no penalty or other additional taxes are due. As with any significant retirement planning decision, you should consult your tax advisor about your individual tax situation.

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