Variable Annuity

A variable annuity is a contract between you and an insurance company, under which the insurer agrees to make periodic payments to you, beginning either immediately or at some future date. You purchase a variable annuity contract by making either a single purchase payment or a series of purchase payments.

A variable annuity offers a range of investment options. The value of your investment as a variable annuity owner will vary depending on the performance of the investment options you choose. The investment options for a variable annuity are typically mutual funds that invest in stocks, bonds, money market instruments, or some combination of the three.

Although variable annuities are typically invested in mutual funds, variable annuities differ from mutual funds in several important ways:

  1. First, variable annuities may let you receive periodic payments for the rest of your life (or the life of your spouse or any other person you designate). This feature offers protection against the possibility that, after you retire, you will outlive your assets. Please note that there are fees for these riders that give any guarantee as to Income For Life.
  2. Second, variable annuities have a death benefit. If you die before the insurer has started making payments to you, your beneficiary is guaranteed to receive a specified amount – typically at least the amount of your purchase payments. Your beneficiary will get a benefit from this feature if, at the time of your death, your account value is less than the guaranteed amount. The investment account in Variable Annuities typically are not guaranteed to market losses. Please proceed with caution when purchasing a Variable Annuity.
  3. Third, variable annuities are tax-deferred. That means you pay no taxes on the income and investment gains from your annuity until you withdraw your money. You may also transfer your money from one investment option to another within a variable annuity without paying tax at the time of the transfer. When you take your money out of a variable annuity, however, you will be taxed on the earnings at ordinary income tax rates rather than lower capital gains rates. In general, the benefits of tax deferral will only outweigh the costs of a variable annuity if the fees are low, and only if you hold it as a long-term investment to meet retirement and other long-range goals.

All Variable Annuities have internal fees and investment sub-account fees. Please ask your Advisor to outline these fees, upfront before you make your purchase. Over the years we have reviewed literally hundreds of Variable Annuities from dozens of different Variable Annuity Insurers. We have found that fees for these types of investments range from 1.5% up to 4%. You have to ask yourself, what sort of impact would these fees have on my long-term savings goals? Again, you have to ask yourself, where would I be if I didn’t have to pay these fees?

 

Annuities are best suited for long term investors. Any strategy utilizing investments carries an inherent element of risk. Withdrawals from an annuity prior to age 59 1/2 are subject to a 10% tax penalty in addition to income taxes on earnings. Guarantees are based upon the claims paying ability of the underlying insurance agency.