The Basics of Annuities

Are you concerned about outliving your income or maintaining your lifestyle during retirement?

Accumulating funds in a deferred annuity during pre-retirement years can help minimize a gap in income throughout your retirement years. Both immediate and deferred annuities offer a variety of income options, including a guaranteed lifetime income option that can complement or supplement other sources of income you may have.

If you have an employer-sponsored retirement plan, such as a 401(k) or SIMPLE IRA, have you contributed the maximum?

These types of plans allow for tax-deductible contributions and can provide tax-deferred growth. If you have maxed out contributions to your 401(k) and IRA, and want to save more for retirement on a tax-deferred basis, an annuity may be appropriate. IRS contribution limits do not apply to non-tax-qualified annuities.

Will you need the money before you reach 591/2?Annuities are designed to be retirement vehicles. Therefore, if you make a withdrawal before age 591/2, the IRS may subject you to a 10 percent early withdrawal penalty in addition to any applicable ordinary income tax. Contractual withdrawal charges may also apply.

Are you currently in a higher income tax bracket than you expect to be in after you retire?

If so, deferring payment of income taxes until you actually withdraw the funds after your retirement may work to your advantage because you may be in a lower tax bracket at that time.

Is an annuity right for you? Ask these questions:

Annuities . . . what are they? An annuity, generally, is a payment received at regular intervals.

Annuity contracts, typically considered long-term investments, are sold by life insurance

companies. You can establish an annuity contract to put aside money for retirement or provide

yourself with a regular stream of income in retirement.

When it comes to making sure you are financially prepared for retirement, annuities can be very

powerful vehicles. They provide the means to accumulate funds on a tax-deferred basis, which

can make a significant difference in your ability to achieve the lifestyle you envision for yourself

throughout this potentially very active stage of life.

Types of annuitiesThere are two basic types of annuities –

An immediate annuity is funded by a single deposit that is converted into a steady stream of income that will commence immediately.

A deferred annuity is funded by either a single deposit or a series of deposits and has two distinct phases: the ‘deferral’ phase, during which time your money can accumulate on a tax-deferred basis, and the ‘income’ phase, when your contract values are converted into a stream of income.

– and, your immediate or deferred annuity can be either fixed or variable.

•Fixed: The rate of return is set and guaranteed for a specific time by the insurance company. This type of annuity may appeal to you if you have a more conservative approach to retirement or are looking for a vehicle to serve as a conservative portion of your retirement portfolio.

•Variable: The rate of return varies based on the investments that you choose. Variable annuities typically offer numerous investment options, can help diversify a retirement portfolio, and can be allocated according to your risk tolerance level. The performance of variable funds is not guaranteed and can fluctuate.

Because variable annuities are investment products, they are sold by prospectus, which will be provided to you by your financial representative.

How an annuity worksIn exchange for either a single deposit or a series of deposits you make into your annuity, the insurance company promises to make a series of payments to you out of the annuity … payments you can use to supplement your income after you retire, or while you transition from partial to full retirement.

The guarantees in an annuity are backed solely by the claims-paying ability of the insurance company and should be a key consideration in making your purchase decision.

A well-diversified retirement portfolio can create the level of income you want during retirement. Attaining the level of income you want can be challenging because retirement today is vastly different from what earlier generations experienced, on a number of levels.

• Theretirementyearsarenowthoughtofintermsofactivity,enjoyment,adventure,andfulfillment–ratherthanyears of rest.

• Thefactthatpeoplearenowlivinglongerpresentsthechallengeofmakingsureyourincomewilllastaslongasyoudo.

• Traditionalsourcesofincomefrompensions and Social Security may not be sufficient to fund the retirement lifestyle you want. Fewer people have access to pensions. In 1992, more than 32% of workers were covered by a defined benefit plan from their employer; now, only about 20% are.1 In addition, Social Security replaces only about 27% of a person’s pre-retirement income for high-wage earners and 40% for average earners.2

• Annuitiesprovideawaytoaccumulatemoney on a tax-deferred basis, and they create a stream of income that can be used to fund your active retirement years. The stream of income from your annuity can complement or supplement other sources of income.

1 Monthly Labor Review, Trends in Retirement Plan Coverage Over the Last Decade/February 20062 EBRI: 2006 Retirement Confidence Survey Fact Sheet

Annuity features and benefits

Annuities…part of a well-diversified retirement portfolio

Both fixed and variable annuities can offer:

• Avarietyofincomeoptionstoallowyoutostructureyour retirement income according to your needs.

• Guaranteedlifetimeincomeoptions,foryoualoneor you and a joint beneficiary, to address the risk of outliving your assets or leaving your survivor without income.

• Theoptiontoreceiveincomeforaspecificnumberof years that you choose, instead of over your lifetime. This can be attractive to people who want to supplement their income during the early years of their retirement when they expect to be more active, especially if they have other resources that will become available at later life stages, such as from the liquidation of property or other assets.

• Aguaranteeddeathbenefitforyourheirs.Deferredannuities provide a guaranteed death benefit. If the owner dies before converting the contract values into an income stream, the direct beneficiary will receive the amount deposited into the annuity, minus any withdrawals – or – the contract value, whichever is greater.

• Tax-deferredgrowth.Theinterestonfixedannuities,as well as the increase in value of variable annuities, is not subject to taxation until withdrawn. This can be especially appealing if you expect to be in a lower income tax bracket after you retire.

Variable annuities are distinguished from fixed annuities because they offer:

• Multipleinvestmentoptionsofferingprofessionalmanagement. Variable annuities offer a number of investment fund options which are managed by dedicated and experienced professionals. This allows your assets to be allocated to match your investment goals, time horizon, and risk tolerance.

• Variableinvestmentsthatprovidethepotentialtokeep pace with inflation.

• Tax-free,cost-freetransfersofassetsbetweenavailable investment funds.

• Variableincomeplanoptions.*

*Note:Theperformanceofvariablefundsisnotguaranteed.Noinvestment strategy can guarantee a profit or protect against a loss.

Annuities…part of a well-diversified retirement portfolio The

Contact your Northwestern Mutual financial representative today to learn more about the role annuities can have in your retirement portfolio.

Northwestern MutualFinancial Network Advantage

Because the guarantees in annuities are only as good as the claims-paying ability of the insurance company that backs them, the track record of the company should be a key factor in your purchase decision.

The Northwestern Mutual Financial Network’s reputation is built on the solid foundation of The Northwestern Mutual Life Insurance Company, which was founded in 1857 and is one of the most respected insurance companies in operation today. Northwestern Mutual has received the best possible insurance financial strength ratings from all four major rating agencies:

A++ A.M. Best June 2009AAA Fitch Ratings June 2009AAA Standard & Poor’s June 2009Aaa Moody’s Investors Service April 2009

Third-party ratings are subject to change. Third-party ratings are a measure of a company’s relative financial strength and security but do not reflect the performance of variable funds. The performance of variable funds is not guaranteed and can fluctuate so that the value of your contract can be more or less than your original investment.

Under the Northwestern Mutual Financial Network, we have set a standard for client service that goes above and beyond what you may have come to expect from a financial services provider. We believe in working for you, and with you, to help you meet your needs for financial protection and accomplish your immediate and long-term financial security goals.

Quality is exemplified in the products, investment options, and services we offer. We are committed to providing service and support as long as you need us.

The income plan payments received from a non tax-qualified annuity are derived from a combination of principal and earnings. The principal portion is not subject to taxation. The earnings portion of each payment, called ‘gain,’ is subject to income tax in the year received. This type of income payment spreads the potential tax liability over a number of years.

Because tax-qualified annuities are generally funded with pre-tax dollars, each income payment is fully subject to taxation in the year received.

One alternative to converting your deferred annuity contract values into a guaranteed income plan is to take partial withdrawals. For a non tax-qualified annuity, taking partial withdrawals results in all taxable gain being taken out of the contract before the tax-free principal. For a tax-qualified annuity funded only with pre-tax dollars, all of the partial withdrawal is subject to income tax.

If you choose not to convert your deferred annuity into an income plan, and instead surrender it for a lump sum of cash, the entire gain in the contract would be subject to income tax in the year of surrender.

Because both non tax-qualified annuities and tax-qualified annuities were designed as retirement vehicles, the federal law that applies to annuities discourages annuity owners from taking money out of an annuity before retirement age. For example, withdrawals, surrenders, or income payments taken from an annuity before the owner has reached age 59½ may be subject to a 10 percent early withdrawal penalty tax, in addition to ordinary income tax.

Retirement arrangements are subject to a variety of IRS rules with regard to eligibility, adoption, annual reporting, and taxation. The tax treatment of traditional IRAs and other qualified retirement arrangements, including income tax deferral on the earnings, is the same regardless of the funding vehicle chosen.

This information is provided for educational and/or promotional purposes. It does not contain legal or tax advice and is not intended to be and cannot be used to avoid any penalties under the U.S. federal tax law. You should always seek tax advice regarding your particular circumstances from an independent tax advisor.

Annuities … how they are taxed

Typical CostsIn choosing an annuity product that will best serve your needs, it is also important to take the costs into consideration.

FixedAnnuities: Typically, there are no additional charges or fees because the current interest rate is net of the expenses.

VariableAnnuities: As is the case with all investment products, expenses and fees may apply and vary from insurance company to insurance company. The most common are mortality and expense fees, portfolio fees, and contract fees.

Withdrawal charges typically apply in the early years of a deferred fixed or variable contract and are deducted from amounts you withdraw.

The cost for any available optional benefits and riders offered with the annuity would be deducted, in addition to the fees previously mentioned.

Northwestern Mutual Financial Network (NMFN) is the marketing name for the sales and distribution arm of The Northwestern Mutual Life Insurance Company (Northwestern Mutual), Milwaukee, WI, and its subsidiaries and affiliates.

All securities are offered through Northwestern Mutual Investment Services LLC, (NMIS), Suite 600, 611 E. Wisconsin Avenue, Milwaukee, WI 53202, 1-866-664-7737. Member FINRA and SIPC. NMIS is wholly owned by Northwestern Mutual.

Variable contracts have limitations. This material must be preceded or accompanied by a current prospectus or offering circular. You should carefully consider the investment objectives, risks, expenses and charges of the investment company before you invest. Your Northwestern Mutual Investment Services Registered Representative can provide you with a contract, a fund prospectus or offering circular that will contain the information noted above, and other important information that you should read carefully before you invest or send money.

www.nmfn.com

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