Video Transcript Below
Introduction
00:00:00
Francisco Sirvent: Okay, it works. The question is, do I want to… Well, good morning, everybody. Good morning. Welcome.
My name is Francisco Sirvent, for those of you I haven’t met before, with Keystone Law Firm and Lifestyle Planning, and our joint program, the Retirement Management Office.
Today, I’m pretty excited. We have a guest from Lifestyle Planning, our Certified Financial Planner, Karmi Gutman, who is going to talk about something that, honestly, as a young estate planning attorney, I thought I understood. And I kept finding things I didn’t understand about annuities. They are a beast.
These are custom-created products by insurance companies, and so there’s just a gigantic variety out there of types of annuities, how they’re owned, held, what options you have, and what benefits you can get.
When Karmi said, “Hey, I’ve got an idea for something,” and he told me what it was, I just went, “Oh my gosh, please, yes, teach this to all of us.”
So I’m really excited for Karmi to teach us all about annuities and how to understand them quickly.
Housekeeping & Announcements
00:29:18
Francisco Sirvent: So, if you have an annuity—or you think you do—I suggest you take a minute, go grab it. Go grab the last statement you got so you can follow along, because Karmi’s going to walk through some actual live, real statements and show you what each of the different parts mean.
Like I said, there are a million different types of annuities, but you’ll probably be able to find similarities and help you understand what you have.
That’s what we’re going to do today, and I’m really excited about it.
A couple of quick housekeeping items:
We are recording this webinar, and it is open to the public.
We will have Q&A later. Please remember this is public, so hold back any personal or private financial information if you’d like.
00:30:18
Francisco Sirvent: We’re going to share this publicly on our YouTube channel later.
If you have a private or sensitive question, we’ll help you schedule a one-on-one conversation.
I also want to let you know we have our next webinar coming up. Just planting the seed real quick—that is on September 16th at noon next week, hosted by me. I’m going to talk about tax strategies for saving on the taxes that will eventually be due out of your IRA.
So if you have IRAs or 401(k)s and you’re just looking at that as a big tax bill, join me next week. We’ll post the registration link in the chat before we sign off today.
But with that, I want to pass it over to Karmi. Karmi, would you flip through the next two slides? I want to make sure everybody has a chance to read all the fine print.
00:31:25
Francisco Sirvent: You can read this later on the recording, but just a note:
This is not specific financial advice for anyone’s situation.
This is general, educational information.
Please speak to a professional before making decisions about your personal finances.
Other than that—Karmi, I’ll kick it over to you. I’m excited to see what you have. Every time I talk to you about annuities, I learn one more thing. So, welcome, and thank you for doing this.
Karmi Gutman: Yeah, thank you, Francisco. And good morning, everyone. Looking forward to sharing some knowledge with you all today.
Overview of Today’s Session
00:32:20
Karmi Gutman: So, what I have on the docket for everyone today is—we’re going to take what I’m hoping is 30 minutes, where we’ll cover two types of annuities that most people have.
We’ll cover some key points that I think are very important to be aware of. My goal is that at the end of this presentation and discussion, you’ll have a better understanding of whatever type of annuity you have.
That way, you can make an informed decision if you need to:
change the investments within it,
look at making a bigger change, or
just have peace of mind knowing that the annuity you purchased however many years ago is still the right fit for you.
We’ll go through two statements today:
Accumulation annuity – designed to protect you from the market and grow.
Income annuity – designed to give you a guaranteed source of income for a certain period of time.
Types of Annuities & Core Purposes
00:33:23
Karmi Gutman: The first statement we’ll look at is an F&G annuity (an income annuity). Then we’ll look at one from Security Benefit, which is the accumulation or growth annuity.
Bear with me while I share those statements and we’ll rock and roll from there.
Now, usually, I want to make it very clear: annuities are designed to solve for three main problems.
Market protection & income. Either to protect your portfolio from market risk, or to provide guaranteed income based on the creditworthiness of the issuing company.
Long-term care assistance. Some annuities have a rider that provides assistance—not full long-term care insurance, but some help offsetting costs. This is especially useful if you don’t qualify for traditional long-term care insurance.
Legacy or death benefit. To provide a guaranteed inheritance or set amount to whomever you want to leave money to.
The only times we’ve seen annuities not be in someone’s best interest is when they were marketed without solving for one of these three goals. That’s usually where frustration comes in.
So, remember: annuities are really designed for protection, income, care assistance, or legacy.
Understanding Your Statement
00:35:34
Karmi Gutman: Let’s go through the statement. Most annuity statements are provided once a year—sometimes every six months if you’re lucky.
When you look at your statement, there are two things on the front page you should always check:
Tax qualification status.
Is it an IRA/qualified annuity? If yes, then you know it’s taxed like an IRA.
Or is it non-qualified? If yes, it’ll be taxed differently.
Example: This annuity has an account value of $42,953.44, and the initial premium was $42,099.68 (purchased April 8, 2021).
The difference—around $900—is what would be taxable if money was withdrawn. That $900 would be taxed as ordinary income.So, tax qualification tells you what your liability will be if you withdraw or surrender.
Issue date (anniversary date).
Every year on that date, you’ll get a new statement and a letter saying you can change your investment allocations. That window is usually 30–45 days.
And lastly—surrender charge.
This is essentially the cost of getting out of the annuity early. In this case, the product was issued in 2021, with surrender ending April 8, 2035. That means if you take distributions above the free withdrawal amount before then, you’ll pay penalties.
So: always check the issue date and surrender schedule.
Statement Walkthrough: Fees, Riders, and Adjustments
00:40:32
Karmi Gutman: As we continue through the statement, you’ll usually see a breakdown of:
Beginning value
Ending value
Minus any costs or riders
In plain English: riders are add-ons to the policy. They’re often there to solve specific problems:
guaranteed income,
long-term care assistance, or
guaranteed death benefit.
These usually cost extra, and the fees are deducted from your account value each year.
As you scroll down the statement, you’ll also see a detailed explanation of what happened during the year—your contributions, any bonuses, deductions, and growth.
Bonuses and Surrender Value
00:41:44
Karmi Gutman: F&G is pretty good about showing what happens if you want to surrender your annuity.
For example, when this policy started, there was a bonus: put in $42,000, and the company gave 7–10% extra in year one. Sounds great, but there’s a catch—vesting.
That bonus vests over time, so if you surrender too early, they claw back the unvested portion. Plus, they’ll charge an early withdrawal penalty.
These have to be disclosed—no surprises allowed.
Market Value Adjustment (MVA)
00:42:55
Karmi Gutman: Now, here’s a part most people aren’t familiar with: Market Value Adjustment (MVA).
Here’s how it works:
Insurance companies invest your premium mostly in safe bond portfolios.
If you surrender early, they may have to sell bonds.
If interest rates have risen since you bought the annuity, bond prices fall, and it costs the company more to sell them. So they charge you more.
If interest rates have fallen, the bonds are worth more, and it can actually work in your favor—they may credit you extra if you surrender.
For example, right now (next 6–12 months), the Fed has signaled interest rates may drop. If that happens, an MVA could actually increase your surrender value.
But bottom line: MVAs are about whether it costs or benefits the insurance company to unwind their investments early.
Minimum Guaranteed Surrender Value
00:45:38
Karmi Gutman: Another thing: many companies show a minimum guaranteed surrender value.
In this case, it’s about 87.5% of what you originally put in. That means no matter what, if you surrender, you’ll get at least that amount back, even after adjustments.
It’s their way of guaranteeing you won’t walk away with nothing.
Penalty-Free Withdrawals
00:46:45
Karmi Gutman: Let’s talk about withdrawals. Most annuities allow a penalty-free withdrawal amount each year.
Usually after the first year (so if you purchased April 8, 2021, you could withdraw starting April 9, 2022).
Typically 5–10% of your account value (not surrender value).
In this case, it’s 10%. So you could pull about $4,095.78 with no penalty.
But remember: “no penalty” doesn’t mean no tax.
If it’s an IRA annuity, it’s taxed like an IRA withdrawal.
If it’s non-qualified, only the growth portion (here about $900) would be taxed as ordinary income.
Ownership and Trusts
00:49:05
Karmi Gutman: And one important note about non-qualified annuities:
They should be owned in the name of your trust.
Why? Because if you’re incapacitated, your successor trustee can still manage those funds for your care. If it’s not in the trust, it can cause problems.
So just remember: non-IRA annuities should be titled to your trust.
Income Annuity Features
00:50:55
Karmi Gutman: Now let’s jump into what makes this an income annuity.
This one has an income rider. What that means is:
If you decide to turn it on, the insurance company guarantees a stream of income for life (or for a set number of years, depending on the rider).
That income is based on your income base value (a number the company tracks separately from your account value).
So, you might see two numbers on your statement:
Account Value – the cash you could walk away with if you surrender.
Income Base Value – a “phantom” value used only to calculate guaranteed income. You can’t cash it out, but it drives the monthly payment if you annuitize.
Example: Contract vs. Income Value
00:52:05
Karmi Gutman: For example, on this statement:
The contract value is about $42,000.
The income value (used to calculate lifetime payments) is closer to $52,000.
If the annuity owner turns on income at a certain age, the company applies a payout percentage to that income value—say 5% or 6%. That’s what determines the guaranteed check you’ll get every month for life.
But remember: as soon as you start taking that income, your contract value will start going down. The company is making those guaranteed payments from the account, and if the account runs out, the insurance company keeps paying you (that’s the whole point of the guarantee).
Long-Term Care Multipliers
00:54:15
Karmi Gutman: Some riders also come with long-term care multipliers.
Here’s what that means:
Let’s say your normal monthly guaranteed income is $1,500.
If you can’t perform two of the six activities of daily living (ADLs)—things like bathing, dressing, eating, using the bathroom—the policy might double your income for up to five years.
So instead of $1,500/month, you’d get $3,000/month for that period.
It’s not full long-term care insurance, but it’s a helpful benefit if you need care and don’t qualify for or can’t afford traditional coverage.
Choosing the Right Time to Turn On Income
00:55:42
Karmi Gutman: One of the biggest questions people ask is: “When should I turn on my income rider?”
There’s no one-size-fits-all answer. It depends on:
Your age and life expectancy.
Other sources of income (Social Security, pensions, IRAs).
Whether you want to leave money to heirs.
Sometimes it makes sense to turn it on right away; other times, waiting a few years increases the benefit significantly.
That’s why reviewing your income base value versus contract value every year is so important.
Accumulation (Growth) Annuity
00:57:20
Karmi Gutman: Alright, let’s switch gears. Now we’re going to look at an accumulation annuity.
This one isn’t about guaranteed income. Its primary purpose is to grow your money safely while protecting it from market losses.
So when you look at the statement, you’ll see different details compared to the income annuity.
Key Features to Look For
00:58:12
Karmi Gutman: On the front page, check the same things we mentioned earlier:
Tax qualification. Is it IRA or non-IRA?
Issue date. Know your anniversary window.
Surrender schedule. How long until you can take everything penalty-free?
But in addition, with an accumulation annuity, you’ll also want to look at:
Crediting method. How your money earns interest.
Participation rate or cap. The limits on how much of the market growth you get to keep.
Index chosen. Could be S&P 500, NASDAQ, a bond index, or even a custom index the insurance company offers.
Crediting Methods Explained
01:00:05
Karmi Gutman: Let’s talk about crediting methods, because this is where people get confused.
Most growth annuities today are called Fixed Indexed Annuities (FIAs). Here’s how they work:
Your money is not directly invested in the market.
Instead, the insurance company tracks an index (like the S&P 500).
At the end of the year, they credit your account with a percentage of the index’s growth.
Example:
If the S&P grows 10% in a year, and your annuity has a cap of 6%, you’d get 6%.
If the S&P drops 20%, you’d get 0%—you don’t lose, but you don’t gain either.
That’s the trade-off: limited upside, but protection on the downside.
Participation Rates and Spreads
01:02:08
Karmi Gutman: Some annuities don’t use caps—they use participation rates or spreads.
Participation rate: If the market grows 10% and your participation rate is 50%, you get 5%.
Spread: If the spread is 2% and the market grows 8%, you get 6%.
Each insurance company designs these differently, and they can change the rates every year on your anniversary. That’s why it’s important to review your statement annually and see if your money is allocated in the best places.
Diversification Within an Annuity
01:04:00
Karmi Gutman: Another thing to note: you don’t have to put all your money into one index.
Most annuities allow you to split your allocation:
50% into the S&P 500 one-year point-to-point strategy,
25% into a fixed interest bucket (say, 3%),
25% into a custom index.
That way, you’re diversified even within the annuity.
01:06:11
Karmi Gutman: So, utilizing the same example here, it shows you: if you ever wanted to turn in the policy, there is an account value as of April 2024, and then the original amount from the previous year. Right? So from April 27, 2023, to April 27, 2024, what was in there? How much did it make? What’s the current account value? And then—importantly—the surrender value.
With Security Benefit, they don’t always give you all the calculations. They just tell you: if you wanted to get rid of it, you will only get $80,000. So essentially, to get out of this annuity, it’s going to cost you $20,000. That really hurts.
It’s very, very important to remember: if you want to get rid of an annuity, you need to be aware of what that surrender value is. And if you’re ever being marketed to, what’s being offered should—at minimum—bring you above that surrender value through bonuses, performance, or other benefits. Just keep that in mind.
Now, the simplicity with these growth annuities is: you put in X amount of dollars, and they’ll allow you to invest those proceeds into different investment accounts.
Death Benefits
01:07:22
Karmi Gutman: I’ll also mention: annuities—whether income or growth—usually provide some sort of death benefit.
That death benefit is almost always equal to whatever is in your contract value (before surrender charges). So if you don’t touch it, whatever is left will go to whomever you’ve listed as your beneficiaries.
So even if you don’t use it, there’s a good chance something will be left over for your beneficiaries.
Investment Allocations
01:07:55
Karmi Gutman: Looking at this specific product, the investments were split between two different types of accounts:
One was the S&P 500 index (most of us are familiar with that).
The other was also tied to the S&P 500, but with a participation rate instead of a cap.
So, 49% of the $100,000 went into the capped S&P 500 option, and 50.86% went into the participation rate option.
Cap Rates and Participation Rates
01:08:33
Karmi Gutman: Now let’s explain how that works.
When this person bought the annuity (April 27, 2023 – April 27, 2024), the index increased. But because part of their money was in a capped account with a maximum of 4.5%, they only earned 4.5%—even though the actual return was much higher. The difference (about 19%) went to the insurance company as the “cost” for protecting them from downside risk.
On the other hand, the portion in the participation rate account did better. Since the market was strong, 35% of that return equaled about 8.16%. That allocation credited more than the capped portion.
Choosing Between Caps and Participation
01:09:46
Karmi Gutman: Participation rates can be very valuable if the market return exceeds the cap. But you need to understand the historical averages for your chosen index.
For example, the S&P 500 historically returns 6–10% annually, depending on the timeframe. So if the cap is in that range, it’s usually better to choose the cap. But if you believe the market will be much stronger, it may make sense to use a participation rate.
In this case, since the S&P returned 23%, the participation option credited more. After splitting between the two accounts—half at 4.5% and half at 8%—the blended return was around 6%.
Annual Renewal & Allocation Changes
01:11:00
Karmi Gutman: Each year, the insurance company sends you a notice: your anniversary has come up, and you can change your investment allocations. They’re required to give you a long list of all available accounts, with the updated cap rates, participation rates, and fixed account options.
For example:
If the fixed account is paying 3%, that’s guaranteed.
If the cap is 4.5%, that’s the maximum you can earn in that strategy.
If the participation rate is 35%, you get 35% of whatever the index earns.
You’ll get a relocation request form. You usually have 30–45 days to respond, though some companies require 21 days. If you don’t return the form, don’t panic. Your money will simply stay in the same allocations for another year.
Importantly: they cannot change your investments without your permission.
Wrapping Up the Examples
01:13:41
Karmi Gutman: So those are the two types of annuities we went through today—income annuities and growth annuities.
I wanted to leave time for closing remarks from Francisco, and of course, any questions.
Because annuities have gotten a bad rap in the past, it’s important to point out: we can’t control bad apples who mis-market them. But if an annuity solves one of the three core problems—
Market protection & income
Long-term care assistance
Legacy/death benefit
—then it was probably a good annuity for your situation.
I’ll open it up for questions.
Francisco’s Closing Remarks
01:14:54
Francisco Sirvent: One of the things you just told me recently, Karmi, really clicked: annuities get a bad rap because some people sell them in every situation—which is, of course, inappropriate.
But like anything, if it fixes a problem you actually have, then it’s the right tool. If it doesn’t, then you don’t need it.
Because yes, they have expenses, restrictions, and liquidity limits. They’re not the right fit every time. But if you don’t have enough income in retirement, don’t have long-term care insurance, or don’t have a legacy solution, then an annuity might solve that problem.
That framing really helped me understand them better.
Common Client Confusion
01:16:07
Francisco Sirvent: One of the most frequent questions I get from clients is: “I’m not sure if I even have an annuity.”
Sometimes people bring in an IRA statement, and the way the financial institution aggregates accounts, the annuity looks like just another IRA investment.
Even my own mother-in-law’s statement did this. She had a Schwab IRA with some in a money market, some in the stock market, and some in an annuity—but the way the statement was formatted, it looked like one big account. That’s not accurate.
So if you’re not sure, ask. And don’t just let it sit, because annuities have changed a lot in the last few years with interest rates. Some older annuities may not be giving you the best benefits anymore.
Sometimes you can roll one annuity into another with no tax problems at all.
Importance of Annual Reviews
01:18:28
Francisco Sirvent: These aren’t necessarily “set it and forget it” products. You should review them annually with someone who knows what to look for.
Sometimes the best answer is “leave it where it is.” But other times, like one client I recall, they had an annuity that wasn’t performing well. After just one year, a much better option became available with bonuses and better features. Even with a small surrender, it was worth moving.
That’s why it’s so important to evaluate regularly.
Next Webinar & Offer for Reviews
01:19:26
Francisco Sirvent: Before we wrap up, a reminder: our next webinar is coming up, on how to save taxes on your IRAs (which can include annuities). IRA distributions are fully taxable, and I’ll be covering five or six different strategies to manage that.
If you’re unsure about your annuity, or if what Karmi said today felt like Greek, we’re happy to do a review. There’s no cost, no catch, no sales pitch—just an evaluation like what you saw today.
We’ll drop a link to Karmi’s calendar in the chat. You can schedule a time with him directly. He’ll walk through your paperwork confidentially and give you ideas.
And don’t just let it sit—rates have changed a lot, and there are often good options to improve your situation.
Closing
01:21:39
Francisco Sirvent: I’m not seeing any more questions, which means you must have done a great job, Karmi.
Thank you, everyone, for coming. We appreciate your attendance. Look out for this replay on our YouTube channel in the next week.
Have a wonderful rest of your day. Happy Wednesday. And we’ll see you all next week.
