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Portfolios 401: Deferred, Fixed, and Variable Annuities

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1.
How do equity-indexed annuities let you share in equity market returns?
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They offer a percentage of the return of a stock market index. This is an extra perk of these annuities.
2.
Which of the following is not a characteristic investment account available with variable annuities?
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General account. Stock, bond, and money market accounts are the "characteristic" separate accounts available with variable annuities.
3.
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.
4.
When you annuitize, you are paying into your annuity account.
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False. When you annuitize, you begin receiving income from your annuity.
5.
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.
6.
The earnings on variable annuities are taxed during the accumulation period.
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False. The earnings on variable annuities are tax-deferred until payout.
7.
All of the following are benefits of deferred annuities except _______.
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Easy access to capital. Easy access to capital is not a benefit of deferred annuities, where surrender fees and tax penalties can affect early withdrawals.
8.
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.