Are Variable Annuities Good Or Bad?
Are you trying to find a way to supplement your income throughout your retirement? If you are a conservative investor looking for a simple, low-risk solution, you should consider annuities. You can find a lot of solid benefits working with annuities, including variable annuities. Good or bad, many people find the benefits of working with annuities to outweigh any potential risks with this investment vehicle. Learn more about the investing choice of variable annuities good or bad for your own investing strategies.
Variable annuities do receive some bad press, but is it warranted? The annuity itself is a contract between you and a life insurance firm, stating that you will give them a set investment that they will pay you a guaranteed salary from each month for a specific amount of time. These payments can last until your death, a spouse or even be passed on to an heir. They can be a great way to supplement income throughout the rest of your life after retirement and provide peace of mind that a spouse is covered after your death.
One of the biggest benefits to a variable annuity is that it is tax deferred. Throughout its time as an investment, you will be able to enjoy profits into your account without having to pay tax on the income until the monthly checks are sent to you or another recipient each month. In this way, your investment can grow substantially. In addition, because they are a variable annuity (versus a fixed rate annuity), your investment can take full advantage of a strong performance in the marketplace. While a fixed rate investment only gives you a specific profit increase each year, the variable annuity will allow you to benefit when the market is doing well. Conversely, if the market is struggling, you will still earn a guaranteed minimum profit so there is no risk of losing your investment over time.
Many naysayers for the variable annuity complain that the sales commissions on variable annuities are far greater than those in mutual funds, for example, which can promote brokers to push investors towards a variable annuity even when it might not be the best solution for them. This issue is more to do with the broker than the investment vehicle, however. You will also have to deal with a surrender charge, which is the fee that you will need to pay if you close your annuity before the agreed-upon date. Many surrender fees are longer in a variable annuity, lasting as long as 10 years.
Consider a variable annuity as a supplement to a well-rounded portfolio for retirement planning and you will receive the highest benefits from this investment choice.
Variable annuities do receive some bad press, but is it warranted? The annuity itself is a contract between you and a life insurance firm, stating that you will give them a set investment that they will pay you a guaranteed salary from each month for a specific amount of time. These payments can last until your death, a spouse or even be passed on to an heir. They can be a great way to supplement income throughout the rest of your life after retirement and provide peace of mind that a spouse is covered after your death.
One of the biggest benefits to a variable annuity is that it is tax deferred. Throughout its time as an investment, you will be able to enjoy profits into your account without having to pay tax on the income until the monthly checks are sent to you or another recipient each month. In this way, your investment can grow substantially. In addition, because they are a variable annuity (versus a fixed rate annuity), your investment can take full advantage of a strong performance in the marketplace. While a fixed rate investment only gives you a specific profit increase each year, the variable annuity will allow you to benefit when the market is doing well. Conversely, if the market is struggling, you will still earn a guaranteed minimum profit so there is no risk of losing your investment over time.
Many naysayers for the variable annuity complain that the sales commissions on variable annuities are far greater than those in mutual funds, for example, which can promote brokers to push investors towards a variable annuity even when it might not be the best solution for them. This issue is more to do with the broker than the investment vehicle, however. You will also have to deal with a surrender charge, which is the fee that you will need to pay if you close your annuity before the agreed-upon date. Many surrender fees are longer in a variable annuity, lasting as long as 10 years.
Consider a variable annuity as a supplement to a well-rounded portfolio for retirement planning and you will receive the highest benefits from this investment choice.
