Annuities

Annuities

An annuity can provide you with a tax-deferred way of saving for your retirement. And once you’ve retired, an annuity can give you a guaranteed stream of income for as long as you live.* It’s like getting a paycheck for the rest of your life; and it can help you maximize your income throughout retirement.

What’s an annuity?
An annuity, in its simplest form, is a stream of income. It may last your lifetime, like a pension, or some other specified period. Payments can start now (an immediate annuity), or at some time in the future (a deferred annuity).

Why buy one?
An annuity can help you save for retirement, tax-deferred, and allows you to enjoy a steady stream of income for the rest of your life. An annuity can also help to maximize your income throughout retirement; a way to cover your basic expenses, allowing you to more efficiently invest your remaining assets to grow your overall portfolio.

What is an immediate annuity?
With an immediate (or income) annuity, you generally pay the insurer a single amount in exchange for payments that begin immediately (within 12 months). Payments must be no less frequent than annually. Payments continue for your entire lifetime, or for some other duration offered by the insurer, such as the joint lifetimes of you and another person, or a specified number of years. Depending on the option you choose, there may also be a death benefit, where payments may continue to your beneficiary for some time after you die. Immediate annuities can be either fixed, with generally unchanging payments, or variable, where payment amounts will vary based on the performance of underlying investments.

What is a deferred annuity?
A deferred annuity is a type of personal account intended for long-term savings goals, like retirement. Unlike an immediate annuity, income payments are optional and are deferred until a future time. Deferred annuities have two phases: the savings and investment phase, where your earnings accumulate tax-deferred, and the income phase, where you can receive regular payments for your lifetime or another period. Deferred annuities typically allow withdrawals during the savings and investment (or accumulation) phase, and entering into the income phase is typically optional. Early withdrawal charges and ordinary income taxes apply at withdrawal, and tax penalties for withdrawals before age 59½ may apply There are two types of deferred annuity: fixed and variable.

What is a deferred income annuity?
A deferred income annuity is a type of deferred annuity whose features are designed to help maximize your future income. It’s sometimes called "longevity insurance." Flexibility during the accumulation phase (such as the availability of withdrawals) may be limited in exchange for guaranteed payments during the income phase.

What is the difference between a fixed deferred annuity and a variable deferred annuity?
Fixed annuities generally offer lower risk and lower growth potential, while variable annuities can offer greater growth potential in return for increased risk.

  • Fixed annuities generally offer lower risk and lower growth potential, while variable annuities can offer greater growth potential in return for increased risk.
  • Variable annuities offer more growth potential in return for a higher level of risk. Variable annuities can offer investment choice and flexibility through a variety of professionally-managed investment portfolios. These portfolios generally include stock and bond portfolios, ranging from conservative to aggressive risk levels. The value of a variable annuity will fluctuate, depending on how the investment options perform.

Are earnings within a deferred annuity taxed before withdrawn?
No, not until you withdraw them (except for "non-natural persons", e.g., a business).

How are withdrawals from a deferred annuity taxed?
Your annuity’s earnings, when withdrawn, are taxed as ordinary income. Your contributions, when withdrawn, are not taxed. For taxation purposes, withdrawals are treated as coming from earnings first, then contributions. Withdrawals of earnings prior to age 59½ are generally subject to an additional 10% tax penalty. There are additional rules and exceptions; see your tax advisor for more details. More information is also available in IRS Publication 575, Pension and Annuity Income.

How are payments from an immediate annuity taxed?
No tax is payable until you receive a payment. Generally, each payment is partly allocable to your original contribution; that part of the payment is not taxed. The rest of the payment is taxable as ordinary income. There are additional rules and exceptions; see your tax advisor for more details. More information is also available in IRS Publication 575, Pension and Annuity Income.

Is an annuity appropriate for my IRA?
It can be. An immediate annuity can provide guaranteed income for your whole life. People often buy deferred annuities because they are tax-deferred. But since IRAs are already tax-deferred, there is no tax-related reason to use a deferred annuity for your IRA. But you may consider a deferred annuity for your IRA because of the annuity’s other features. For example, a deferred fixed annuity may offer an attractive interest rate. With the purchase of riders available at additional cost, a deferred variable annuity might offer guarantees that ensure a minimum available withdrawal or income amount despite market downturns, or a minimum death benefit that, in the event of poor investment performance, may be much higher than the account balance. And both can be converted to income you can’t outlive.

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* All guarantees are based on the financial strength and the claims paying ability of the issuing insurance company.

Pursuant to IRS Circular 230, MetLife is providing you with the following notification: The information contained in this document is not intended to (and cannot) be used by anyone to avoid IRS penalties. This document supports the promotion and marketing of annuity products. You should seek advice based on your particular circumstances from an independent tax advisor.

Neither MetLife nor its representatives or agents are permitted to give legal or tax advice. Any discussion of taxes included in or related to this article is for general informational purposes only. Such discussion does not purport to be complete or to cover every situation. Current tax law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer vary depending on the taxpayer’s particular set of facts and circumstances. You should consult with and rely on your own independent legal and tax advisors regarding your particular set of facts and circumstances.

Variable annuity products are offered by prospectus only, which are available from your registered representative. You should carefully consider the product’s features, risks, charges and expenses, and the investment objectives, risks and policies of the underlying portfolios, as well as other information about the underlying funding options. This and other information is available in the prospectus, which you should read carefully before investing. Product availability and features may vary by state.

Like most annuity contracts, MetLife’s contracts contain surrender charges, exclusions, limitations and terms for keeping them in force. Please call or see your MetLife representative for complete details.

MetLife annuities issued by Metropolitan Life Insurance Company, New York, NY 10166. Variable annuities are distributed by MetLife Investors Distribution Company, (FINRA), Irvine, CA 92614.