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Portfolios 401: Deferred, Fixed, and Variable Annuities

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1.
An annuity that allows you to shelter some of your current income from taxes is called a _______.
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Qualified annuity. A qualified annuity, based on the assets of a qualified retirement plan such as a 401(k) or 403(b), allows you to shelter some of your current income from taxes.
2.
With annuities, mortality risk benefits _______.
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Both. Annuitants trade the risk of dying before collecting full value for higher payments and possibly collecting more than full value if they live long.
3.
A non-qualified annuity can be a good way to avoid all of the following except _______.
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Early withdrawal penalties. Unlike the other choices, early withdrawal penalties can't be avoided with deferred annuities (except, of course, by not withdrawing your funds prematurely!).
4.
The better your investment choices pay off, the more your fixed annuity will pay.
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False. Fixed annuities earn a fixed income rate and pay a fixed income, regardless of the performance of the underlying investments. You do not make investment choices in a fixed annuitypremiums go into the general account of the company.
5.
Equity-indexed annuities typically _______ some safeguards if the stock market dives.
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Do provide. These annuities allow you not only to share when the market goes up, but they usually limit your losses when the market goes down.
6.
The period during which you receive payments from an annuity contract is called the _______.
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Payout period. In the payout period you surrender the value of the annuity contract in exchange for guaranteed monthly payments of benefits.
7.
Unlike with fixed annuities, your payments from a variable annuity are not guaranteed.
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True. They depend in part on the performance of the underlying investments in the separate accounts to which you contribute.
8.
A fixed annuity is a good hedge against inflation.
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False. Fixed-income payments and relatively low returns mean that annuities provide little protection against inflation.