Buying/canceling your annuity contract
Are there any age limits for buying this contract?
Anyone may purchase a Vanguard Lifetime Income Program annuity contract, but annuitants may not be older than age 90.
Is a medical exam required?
No medical exam is needed.
Could I benefit from Medical Underwriting?
If you have a medical condition - such as heart disease or diabetes - that might reduce your life expectancy, you may be eligible for Medical Underwriting. Under this provision, you could receive a "rated age," greater than your actual age, that could either increase your income payments or reduce the premium needed to generate specific payments. For more information on Medical Underwriting, call 800-522-5555, Monday through Friday, 8 a.m. to 8 p.m., Eastern Time.
How much of my portfolio should I use to purchase the annuity?
Generally, the more you commit, the larger your income payments. How much you commit depends on your personal financial situation. You want to be sure that you have enough money set aside for emergencies, large purchases, and other things that may arise. You cannot change your mind and cancel the annuity contract except in very limited circumstances.
What is a "free look"?
As the contract owner, you may cancel your contract during the free look period and we will refund your premium. If you've chosen variable payments, your money is invested in the Vanguard® Variable Insurance Fund—Money Market Portfolio during the "free look" period and we will refund your premium with interest if any. The length of the free look period varies by state and whether you are purchasing a new annuity or replacing an existing policy. More specific details are provided in the Fact Sheet.
What is the Cancellation Option?
You, the contract owner, can select this optional feature which allows you the right to cancel your contract within six months of the purchase date and receive a refund equal to the present value of your future income payments. The cancellation option also provides for the payment of a lump sum death benefit if the annuitant and joint annuitant (if any) both die within six months of the purchase date. The death benefit will equal the present value of future variable income payments plus any premium allocated to fixed annuity payments, minus any fixed payments already made.
To qualify for the cancellation option, the annuitant must be younger than age 75 and the joint annuitant (if any) must be younger than age 80 at the time of purchase. If you meet these age requirements, this cancellation benefit is available as an option when you select either fixed only income payments (except in New York State) or variable income payments (in all states including New York).
Note: If you choose the cancellation option, the amount of each annuity payment will be lower than it would be without the cancellation option.
Can I purchase a specific payment amount?
If, for example, you've paid enough to generate $1,000 a month, you can receive this amount as a fixed payment. You can select the variable income option and receive an initial payment of approximately $1,000; however, your first payment (and all future variable payments) will fluctuate depending on the investment portfolios and the Assumed Investment Return (AIR) you select. Of course, you'll have to make sure you're willing to purchase an annuity that generates this amount.
Can I purchase my income annuity with both qualified (pre-tax) and nonqualified (after-tax) retirement savings?
If you purchase the Vanguard Lifetime Income Program contract with both qualified (pre-tax) and nonqualified (after-tax) money, you will receive two separate annuity contracts/certificates. For your convenience, however, the income payments can be combined.
What happens if I die before I begin receiving payments?
As the annuitant, if you and your joint annuitant (usually, your spouse) are not alive on the date you are scheduled to begin receiving payments, the contract will be cancelled and a refund paid to your beneficiaries or estate.
What happens if the annuitant dies after payments begin?
Unless you choose the cancellation option, any remaining payments will be made in accordance with the annuity option you selected. For example, if you had received 7 years of payments of a life with a 10 year guaranteed period payout option, the remaining 3 years of payments would be made to the beneficiary.
If you select the cancellation option and the annuitant(s) die within six months of the purchase date, then a lump sum death benefit will be paid. The death benefit is equal to the present value of future variable income payments and premium allocated to fixed annuity payments, less any fixed payments already made. For deaths that occur after the initial six months, any remaining payments will be made in accordance with the annuity option you selected.
Choosing an income stream/investment choices
Can I change my mind between the fixed and variable income options?
You can transfer from variable to fixed income options, but you can't transfer from fixed to variable options.
If I choose the variable income option, which AIR should I choose?
The Assumed Investment Return (AIR) you select—3½% or 5%—should correspond with how aggressively you plan to allocate your annuity assets among the investment options. The higher the AIR, the higher your initial payment. However, the higher the AIR, the more likely your future income could go down if your investment portfolio's net performance is less than the AIR.
Is there a limit on how many times I can change my investment mix?
Generally, you can change your investments at any time; however, you can't exchange into and out of a portfolio (a "round trip") more than twice in a 12-month period. The exception is the Vanguard® Variable Insurance Fund—Money Market Portfolio.
The minimum exchange amount is $50 per month. You may be charged $10 per transfer after 12 transfers in a contract year.
How are my income payments calculated?
Your age, gender, purchase amount, and income option determine your fixed income payment. If you elect the variable income option, your benchmark rate (AIR) and investment performance will also be factors in determining your future income payments.
Can I receive fixed payments and still keep pace with inflation?
Fixed payments are level and do not automatically increase with the rising cost of living. You can elect an inflation adjustments option, which adjusts the payments each year on January 1 to reflect changes in the non-seasonally adjusted Consumer Price Index - U (“CPI”) as published by the Bureau of Labor Statistics. Or you can elect a graded payment option, which will increase your income payment from a fixed 1% to 5% (whichever you select) each year.
If I choose the variable income option, when will my money be invested in the investments I've chosen?
Your initial premium minus any fees and costs will be allocated to the Vanguard Variable Insurance Fund—Money Market Portfolio for at least 15 days. After the greater of 15 days or your state's required free look period, your premium plus any interest earned will be applied to the investment options you selected.
Understanding taxation/RMDs/estate planning
Are there any taxes on the annuity income I receive?
In general, there is no taxable event at purchase. When you purchase an income annuity using qualified (pre-tax) money such as from a traditional IRA, 401(k), or 403(b) plan, the income you receive is taxed as ordinary income in the year it’s received. If you purchase using nonqualified (after tax) assets (savings that have already been taxed), a portion of each annuity payment will be excluded from taxation until your after-tax purchase amount has been returned to you.
A Roth IRA is a special type of IRA under which distributions may be exempt from federal income tax. Distributions may be free of federal tax if you have had a Roth IRA account for at least five years and you are at least 59 ½ years old, or in the case of death or disability.
We suggest that you contact your tax advisor with any specific tax related questions.
How does an income annuity fit into my estate plan?
Generally, an income annuity is not a good way to pass money to your heirs, even if you choose income options that continue to pay your spouse or other heirs after your death. That's because your heirs will owe income tax on a portion (or, in some cases, all) of the payments. See an estate planning professional for more information.
Will an income annuity satisfy my RMDs?
Required minimum distributions (RMDs) are the minimum amounts the IRS requires you to withdraw each year from tax-deferred retirement plans (excluding Roth IRAs) after you reach age 70½. If you purchase an income annuity with qualified (pre-tax) money, you can satisfy the RMD rules as long as you select payments that are not designated to be made over a period that exceeds your life expectancy.
Consult your tax advisor for more information.
Note: An investment in a money market portfolio is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in such a fund.
*If you select the variable or combination options, your income payments are subject to market fluctuation. The value of your annuity contract could increase or decrease. The fixed annuity guarantee is based on the claims-paying ability of American General Life Insurance Company of Delaware and American International Life Assurance Company of New York (in New York State only), which are the insurance companies that issue the annuity.
| 
