Retirement & Annuity Glossary
Plain‑English definitions for key annuity and retirement income terms. Use search or A–Z filters. Educational only — always confirm specifics in the contract and carrier materials.
- Accumulation Phase #
- The period of time prior to annuitization or surrender when amounts invested in an annuity accrue interest, dividends, and/or capital gains.
- Annuity #
- An insurance contract that provides future income in exchange for present contributions. It is a long-term investment designed to help protect investable assets and mitigate the risk of outliving income.
- Annuitant #
- The individual entitled to payments made by the annuity and whose age and gender is used to determine the payment amount. The annuitant is usually also the contract owner but may be another person, such as a spouse.
- Annuitization #
- The conversion of the contract value of a deferred annuity into a lifetime stream of income payments, or payments for a set period, or the greater of the two. Common options include: Life only; Life with period certain; Life with cash refund; Life with installment refund; Joint & survivor.
- Benchmark Risk #
- The potential for the investment returns of a mutual fund or subaccount to differ significantly from its benchmark (the market index it is measured against).
- Benefit Base #
- A value used to calculate a benefit in an annuity, most commonly a lifetime withdrawal benefit. The benefit base value is “notional,” meaning it does not represent contract or cash value and is used only to calculate the value of a benefit.
- Beneficiary #
- The person, persons, or entity legally entitled to receive benefits from financial products. For annuities, these are contractual benefits paid upon the death of the owner(s) of the contract.
- Bonds #
- Debt obligations issued by government agencies or private companies (e.g., Treasury securities and corporate bonds). Investment-grade bonds have lower default risk; high-yield bonds generally offer higher interest but higher default risk.
- Buffered ETF #
- Exchange traded funds that provide investors with the upside of a market index, capped to a certain percentage, while also providing downside protection on the first pre-determined percentage of losses. Losses beyond this pre-determined percentage are absorbed by the investor.
- Cash Value #
- The value of a financial product, less any fees or penalties, when fully liquidated. For annuities, also see surrender value.
- Certificate of Deposit (CD) #
- A bank issued savings product that earns interest on a lump sum investment for a specified period.
- Claims Paying Ability #
- The financial strength and relative ability of an insurance company to pay claims on its issued annuity and other insurance contracts. Often evaluated by rating agencies such as AM Best, Moody’s, S&P, and Fitch.
- Commutation #
- A feature that may be available after a contract has been annuitized where future payments are converted to a lump sum, calculated as the present value of the remaining payments based on the life expectancy of the annuitant.
- Contingent Deferred Annuity (CDA) #
- An insurance product establishing a contract between an insurance company and the CDA purchaser whereby the insurer is obligated to make scheduled payments for the lifetime of the purchaser once designated investments are depleted — the benefit is contingent on asset depletion.
- Contract Anniversary #
- The date the contract is issued.
- Contract Owner #
- The individual who owns the annuity contract and has the authority to make withdrawals, change beneficiaries and terminate the annuity.
- Contract Value #
- The full value of the annuity, not including any early withdrawal penalties that may apply. This may also be referred to as the “account value.”
- Contract Year #
- The one-year period between contract anniversaries.
- Corporate Bond #
- A debt obligation issued by a private company. Investment-grade bonds have lower default risk and higher ratings; high-yield corporate bonds offer higher interest but greater default risk.
- Death Benefit #
- The amount an annuity contract pays to the contract owner’s named beneficiary or beneficiaries upon the death of an owner or co-owner.
- Deferred Annuity #
- A contract with an insurance company that promises to pay the owner a regular income or lump sum at some future date. Interest and capital gains in fixed and variable annuities are not taxed until monies are withdrawn.
- Dividend Return #
- The portion of the overall return of a stock attributable to dividends paid per share by the issuing company.
- Duration #
- The length of time it takes to recover the price paid for a bond from total cash flows (principal plus interest). Also a measure of sensitivity of a bond’s price to changes in interest rates.
- Early Withdrawal Penalty (Surrender Charge) #
- A type of sales charge that may be assessed if you withdraw money from an annuity during the surrender period defined in the contract. Many surrender charge periods are three to seven years, with the charge reducing over time until it reaches zero.
- Enhanced Death Benefit #
- Standard annuity death benefits are generally equal to the current account value or the greater of the account value or amount invested (return of premium). Enhanced benefits may use roll-ups, step-ups, or both to provide a higher level of protection for beneficiaries.
- Exchange-Traded Funds (ETFs) #
- Baskets of securities traded on an exchange, generally designed to provide exposure to a broad market index such as the S&P 500.
- Exclusion Ratio #
- The percentage of annuity payments that is not subject to taxes and is excluded from gross income. It is calculated by dividing the initial investment over the expected payment period (for lifetime payments, based on life expectancy). After the expected period, payments are fully taxable at ordinary income rates.
- Federal Deposit Insurance Corporation (FDIC) #
- An independent U.S. agency created by Congress to maintain stability and public confidence in the nation’s financial system. The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.
- Fees #
- Fixed annuities often do not charge explicit fees (except for optional benefits) but are spread products. Variable annuities typically include fees such as mortality & expense risk (MER), administrative fees, investment management fees (subaccounts), and fees for optional benefits.
- FIA Spread #
- The percentage subtracted from the index change before interest is credited to the FIA. Spreads do not reduce the contract value if the index change is negative.
- Financial Goals #
- Financial priorities that impact the objectives investors set for how to save or spend money during important life stages.
- Financial Professional #
- A qualified person who can help investors understand their options and make financial decisions to work toward financial goals.
- Fixed Annuity #
- A tax-deferred insurance contract that promises to pay the buyer a guaranteed rate of interest on their contributions and provides a lifetime income stream in retirement.
- Fixed Indexed Annuity (FIA) #
- A tax-deferred insurance contract that provides principal protection in down markets and an opportunity for growth. FIAs credit a guaranteed interest amount, with the opportunity to earn additional interest based on positive changes in the value of one or more market indexes.
- Free Withdrawals #
- An annual percentage of the amount invested that can be withdrawn from the annuity without penalty each year. The penalty-free withdrawal amount varies by insurer; 10% is common.
- General Account #
- The account of the insurer where premiums invested in annuities are deposited and from which the insurer funds business operations. Fixed and fixed indexed annuities are general account products, and many variable annuities offer a general account option.
- Guaranteed Minimum Accumulation Benefit (GMAB) #
- A benefit that guarantees the account value will equal some fixed percentage (typically 100%) of premiums, minus any withdrawals, as long as the contract remains in force and the account value does not decrease to zero as a result of withdrawals, after a minimum period of time (usually 10 years).
- Guaranteed Minimum Income Benefit (GMIB) #
- A benefit offered in variable annuities that guarantees the contract owner can annuitize the contract and receive annuity payments calculated against the greater of the actual account value or guaranteed benefit base. As with an immediate annuity, there is no cash value after annuitization and payments are made for the life or lives of the annuitant(s).
- Guaranteed Lifetime Withdrawal Benefit (GLWB) #
- A benefit offered in variable, fixed indexed, and RILAs that allows the contract owner to withdraw a set amount each year for life (or joint life in some contracts), regardless of whether there is still account value. If account value becomes zero, the insurer continues payments until the owner(s) die, subject to contract rules.
- Immediate Annuities (SPIAs) #
- Insurance contracts where a lump sum is invested and the insurer agrees to make periodic income payments for life, a specified period, or the longer of the two. SPIAs have no cash value beyond the insurer’s obligation to make the periodic payments under the contract.
- Investable Assets #
- Assets that can be easily liquidated, such as bank accounts, stocks, bonds, mutual funds and annuities.
- Joint Life Benefits #
- Annuity income benefits issued on two people (usually spouses) and continue to pay to the second person after the first dies. Available as an annuitization option and with most guaranteed lifetime withdrawal and guaranteed lifetime income benefits.
- Lifetime Income #
- Periodic income payments from an annuity that continue for the life, or lives, of one or more owners. Lifetime income is available through annuitization or through living benefits such as guaranteed lifetime withdrawal benefits and guaranteed lifetime income benefits.
- Liquidity #
- The relative ease with which an investable asset can be converted into cash without affecting its market price.
- Living Benefits #
- Optional benefits offered on some annuities which provide benefits while the contract owner is still alive. Examples include GMAB, GMIB, and GLWB.
- Managed Floor ETF #
- Exchange traded managed outcome funds that use options strategies to provide investors with the upside of equity markets while providing a measure of downside risk. As opposed to a buffered ETF, the investor is protected against losses beyond a pre-determined percentage.
- Market Index #
- A hypothetical portfolio of investment holdings that represents a segment of the financial market. The value of the index is calculated using the prices of the underlying holdings.
- Market Risk #
- The chance an investor could lose money because of market downturns.
- Market Volatility #
- Also referred to as “market ups and downs,” the way stocks, bonds and other market investments change in value, sometimes very quickly.
- Maturity #
- The date a financial agreement ends, triggering repayment of principal with interest.
- Moneyness #
- A term describing the relationship of an option’s strike (exercise) price with its spot (market) price.
- Mortality Pooling (Mortality Credits) #
- In a large pool of annuitants, the investments of those who die earlier than expected contribute to the overall pool and provide higher payments to survivors. Mortality credits increase with age and help hedge longevity risk.
- Open-End Mutual Fund #
- A collective investment vehicle that buys and sells stocks, bonds, and options and can issue unlimited new shares, priced daily based on the net asset value of the securities held in the portfolio.
- Option #
- The right to buy or sell a security at an agreed upon price for a defined time period.
- Participation Rate #
- The percentage of the increase in the index value that is credited to the annuity at the end of a selected time period.
- Principal Protection #
- Embedded or optional features in an annuity that guarantee the contract will return no less than the amount invested, subject to product terms and the claims paying ability of the issuer.
- Probate #
- The formal legal process for gathering assets, satisfying debts, and distributing remaining amounts to beneficiaries. Amounts invested in annuities are generally paid directly to named beneficiaries and are not included in probate.
- Purchase Payment (Premium) #
- The payment or series of payments that represent the investment in the annuity.
- Qualified Plan #
- An individual or employer-sponsored retirement plan that allows saving on a pre-tax basis; contributions and earnings are not taxed until withdrawn. After-tax money invested outside these plans is “non-qualified.”
- Registered Index-Linked Annuity (RILA) #
- An insurance contract providing a tax-deferred, long-term savings option that limits exposure to downside risk and provides the opportunity for growth.
- Required Minimum Distribution (RMD) #
- The amount you are required to withdraw annually from a qualified retirement account, such as an IRA, starting at age 72.
- Return Dilution #
- Limited participation in the returns of outperforming stocks when held in a widely diversified portfolio.
- Pays beneficiaries the greater of the contract value or the total amount invested upon the death of the contract owner(s).
- Roll-Up #
- An annuity feature that increases the value of a benefit each year (simple or compound), independently of contract value, used to calculate benefit amounts. Roll-ups generally terminate when benefit payments begin.
- Separate Account #
- A fund created by the insurer, separate from the company’s general account, used for investing variable annuity and other holdings in open-end funds and other investments.
- Sequence of Returns Risk #
- The potential for a market downturn early in retirement to have a disproportionately negative impact on the long-term account balance of a retirement portfolio if withdrawals are already being taken.
- Spread #
- The difference between the interest the insurance company earns on its investments and the interest credited to the annuity. Fixed and fixed indexed annuities are often referred to as spread products.
- Step-Up #
- An annuity feature that increases the benefit base to equal the current account value, often on anniversaries. Step-ups may continue after benefit payments begin, provided there is remaining contract value.
- Subaccount #
- A segregated account maintained by an insurance company to hold mutual fund-like investments for use in variable annuity and variable life products.
- Surrender Value #
- The cash value of the annuity less any early withdrawal penalty, market value adjustment, charges or fees.
- State Guaranty Associations #
- State guaranty associations provide coverage (up to limits set by state law) for resident policyholders of insurers licensed to do business in their state.
- Systematic Withdrawal Plan (SWiP) #
- The withdrawal of fixed amounts from a portfolio of investable assets on a regular, periodic basis for supplemental retirement income, often adjusted annually for inflation.
- Treasury Security #
- A debt obligation issued by the United States Department of the Treasury, including bills, notes and bonds of varying maturities that pay interest on a semi-annual basis.
- Trigger #
- A method of crediting interest to an FIA where the contract is credited with a stated rate of interest if the change in value of the underlying index is positive over the specified time period.
- Trust #
- A legal entity that holds assets for beneficiaries. The terms of the trust dictate the method and timing of the distribution of assets.
- Variable Annuity (VA) #
- An annuity with an account value tied to the performance of an investment portfolio. The value of the annuity, and payments from the annuity, can increase if the portfolio performs well and decrease if the portfolio loses money.
- Variable Income Plan #
- The withdrawal of a set percentage amount from a portfolio of investable assets on a regular basis for income. The dollar amount varies based on investment returns and portfolio value changes.
