Retirement & Annuity Glossary
Plain‑English definitions for the most important annuity, retirement income, and indexing terms. Use the search or A–Z filters. Educational only — verify specifics in product disclosures.
- Accumulation Phase #
- The period before you begin taking income when funds remain inside an annuity contract to potentially earn interest or indexed credits.
- AM Best Rating #
- An independent insurer financial strength opinion. One of multiple rating agencies; use in context with others (S&P, Moody’s, Fitch) rather than alone.
- Annuitization #
- Irrevocably converting annuity value into a guaranteed income payment stream. Modern planning often uses withdrawal riders instead instead of full annuitization.
- Basis (Cost Basis) #
- The amount of after‑tax dollars contributed. Determines taxability of future withdrawals (exclusion ratio for immediate annuities; LIFO for deferred non‑qualified annuities).
- Benefit Base #
- A separate notional value used only to calculate rider benefits (income, death, bonuses). Not a cash value. Cannot be withdrawn.
- Cap (Cap Rate) #
- The maximum interest credit for a period under a capped index crediting method. If index return exceeds the cap, credited interest is limited to the cap.
- Carrier Financial Strength #
- Overall insurer claims‑paying assessment inferred from independent ratings and surplus trends. Guarantees rely on this—not federal insurance.
- Comdex Score #
- A composite percentile ranking (1–100) summarizing multiple rating agencies. A 90 means the carrier is in roughly the top 10% of rated insurers.
- Contract Anniversary #
- The yearly date that triggers renewal of caps, participation rates, or spreads for index strategies.
- Death Benefit (Annuity) #
- What beneficiaries receive if the annuitant/owner dies during contract. Usually the current account value; may be enhanced via optional rider.
- Deferral Period #
- Span of years between contract issue and first income withdrawal or annuitization. Longer deferral can enhance guaranteed payout factors.
- Exclusion Ratio #
- IRS formula applied to immediate annuity / annuitized payouts determining tax‑free return of basis vs. taxable portion.
- Fiduciary Standard #
- Obligation (when applicable) to act in the client’s best interest—different from suitability. Not all annuity transactions occur under a strict fiduciary engagement.
- Fixed Account (Bucket) #
- A declared rate interest strategy inside an indexed annuity offering a guaranteed rate for a set period.
- Free Withdrawal Amount #
- The percentage (often 5–10%) of account value (or premium) you can access annually without surrender charges during the surrender schedule.
- Guaranteed Lifetime Income #
- Income that continues for life (single or joint) via annuitization or a guaranteed withdrawal benefit rider.
- Indexed Annuity (FIA) #
- Deferred annuity that credits interest linked (indirectly) to an external index with downside protection (no direct equity investment).
- Income Rider (GLWB) #
- Optional rider (fee-based or built‑in) allowing lifetime withdrawals without annuitization, using payout factors applied to a benefit base.
- LIFO (Last In, First Out) #
- Tax treatment on non‑qualified deferred annuity withdrawals: earnings (taxable) deemed distributed before basis.
- Market Value Adjustment (MVA) #
- Adjustment (positive or negative) applied to certain withdrawals or surrenders during the surrender period to reflect interest rate environment changes.
- MYGA (Multi-Year Guaranteed Annuity) #
- Fixed annuity guaranteeing a declared rate for a multi‑year term (e.g., 3, 5, 7). Interest compounds tax‑deferred until withdrawal.
- Participation Rate #
- Percentage of an index’s gain credited to your annuity value (e.g., 45% of the index return). May be uncapped.
- Upfront or vesting credit applied to the contract (account value or benefit base). Often offset by lower renewal caps/pars or longer surrender schedule.
- Qualified Funds #
- Retirement dollars already tax‑deferred (IRA, 401(k) rollover). Future distributions taxed as ordinary income regardless of annuity wrapper.
- RMD (Required Minimum Distribution) #
- Minimum annual amount the IRS requires from certain tax‑deferred retirement accounts beginning at the applicable start age.
- Renewal Rates #
- The caps, participation rates, or spreads a carrier sets after the initial crediting period. Core to long‑term performance; avoid judging solely on new‑business teaser rates.
- Rider Fee #
- Annual charge (percentage) deducted for an optional benefit (income, enhanced death, multiplier). Evaluate net value delivered, not fee in isolation.
- Spread (Asset Fee) #
- Amount the insurer subtracts from index gain before crediting interest. Example: Index gain 8% – 3% spread = 5% credit.
- Surrender Charge #
- Penalty for withdrawals above free allowance during the contract’s surrender period. Declines over years until 0.
- Tax-Deferred Growth #
- Earnings accumulate without current taxation; taxes due upon distribution (or portion thereof) depending on contract type.
- Volatility-Controlled Index #
- Custom index engineered to target a set volatility level (e.g., 5%); helps insurer price options more efficiently for potential higher participation.
- Waiver (Nursing Home / Terminal Illness) #
- Provision allowing access to value without surrender charges if qualifying health conditions occur (state & contract specific).
