Northwest Financial LLC

ANNUITIES - FIXED, VARIABLE (LONG-TERM INVESTMENTS)

Life expectancy for the U.S. population reached a record high of 76.9 years in 2000 as mortality declined for several leading causes of death, according to preliminary figures from a report by HHS' Centers for Disease Control and Prevention (CDC). (Full article is available at http://www.hhs.gov/news/press/2001pres/20011010.html).

What would happen if you outlived your retirement savings? This may not be an unreasonable supposition as life expectancies continue to increase. To help you avoid this unfortunate situation and prevent you from outliving your savings, your Northwest Financial LLC financial representative may recommend a tax deferred annuity.

What is an annuity?

An annuity is designed to provide an income stream for a specified period of time (a number of years or for life).

An annuity can be either immediate or deferred. An immediate annuity begins to make income payments soon after you pay the premium. The income payments from a deferred annuity start later and contain an "accumulation" period. The time after income payments start is called the "payout" period.

How exactly do tax-deferred annuities work?

A tax-deferred annuity is a contract sold by an insurance company that is designed to provide an income stream at specified intervals. Payments of the income stream are based on the claims-paying ability of the issuer.

Basically a tax-deferred annuity has two phases. You might call one phase the accumulation phase and one phase the annuitization or withdrawal phase - when you begin receiving payments.

Once you start withdrawing money from the deferred annuity either randomly or on a regular basis, you will begin paying taxes on the interest earned. If withdrawals are made prior to age 59 1/2, a 10% IRS penalty will apply. Surrender charges may also apply.

Describe the basic types of tax-deferred annuities.

There are two basic types of annuities. They are:

Fixed Annuity

A fixed annuity provides a guaranteed, fixed dollar benefit amount for a given period. For example, during the accumulation period of a fixed deferred annuity, premiums earn interest at a rate indicated in your annuity contract and will be paid out at no less that the minimum rate. This product is more conservative than the variable annuity.

Variable Annuity

During the accumulation period of a variable annuity, your premium dollars (less any fees) are put into a professionally managed sub-accounts. You select these accounts based on your goals and risk tolerance. The underlying investments in the sub-accounts generally consist of stocks, bonds, and fixed income securities.

The value of your variable annuity is based on the performance of the investment sub-accounts you choose. There is no guarantee that you will receive all of your premium back or that you will earn a return.

A simple way to look at a variable annuity is this

Step 1: you invest money either in a lump sum or over a period of time into sub-accounts designed to meet your overall financial goal (risk tolerance, time frame, etc.)

Step 2: any earnings from your investment choices grow tax-deferred. This means that taxes are not paid until the money is withdrawn.

Step 3: You take your money out either through random withdrawals or systematic withdrawals. (It is very important to note that you can be subject to IRS penalties if you withdrawal the money prior to age 59 1/2. Surrender charges may also apply.

The principal fluctuates and the return is variable. This product can offer the potential for a higher rate of return in comparison to the fixed annuity. However, it involves a higher degree of risk to the principal.

After age 59 1/2, you can annuitize the contract and the insurance company will pay out an income stream based upon the portfolio value of the underlying investment, either as a fixed amount or a variable amount that changes with the value of the investment held. The income stream is payable based on the claims-paying ability of the issuer.

Access to securities and insurance products provided by Northwest Financial Group, a registered broker/dealer, member FINRA/SIPC. Northwest Financial Group is a subsidiary of Northwest Financial LLC, a wholly owned subsidiary of Northwest Federal Credit Union. Securities and insurance products are offered through LPL Financial and its affiliates, member FINRA/SIPC. LPL Financial has contracted Northwest Financial Group to refer securities and insurance business to LPL Financial. Northwest Financial LLC and Northwest Federal Credit Union are not registered broker/dealers and are not affiliated with LPL Financial. Not NCUA insured. No credit union guarantee. May lose value.

Loan protection and tax preparation services are not affiliated or endorsed by LPL Financial.

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