In the recent past, variable annuities have received both positive and negative attention in the media. Many articles have been published that detail variable annuities’ high potential market gains, but many more have been published describing excessive variable annuity fees, unethical sales practices, and the risk of losing principal. You may wonder if you are getting a balanced view from variable annuity salespeople and the articles published in the media. One way to decide if variable annuities are right for you is to consider the facts – the pros and cons of variable annuities.
On the pro side, variable annuities are tax-deferred until withdrawal, just like all other types of deferred annuities. You will not have to pay one penny of income taxes while your money continues to grow and compound inside the annuity contract. If non-qualified funds (not part of your IRA or other tax qualified account) are used to purchase the annuity, variable annuities impose no required minimum distributions at advanced ages, so you can choose if or when you would like to make withdrawals. And unlike other tax favored accounts, such as an IRA or 401k, there are no limits to the amount of money you can contribute to a non-qualified variable annuity. Last but not least, variable annuities allow you to allocate your money in investment sub-accounts as you see fit, giving you control over asset allocation pursuant to your risk tolerance.
This power to invest and allocate funds comes with some drawbacks – most importantly, the money in your variable annuity is subject to market risk and volatility, it is not guaranteed against losses. When you buy a variable annuity, versus other principal protected fixed annuity products, you give up the protection that those annuity contracts offer – a very big concern, especially for seniors and retirees who should be reducing the percentage of their portfolios subject to market risk as they age. Also, variable annuities do not provide guaranteed returns and most impose significant and ongoing fees, something that is non-existent with fixed annuity products. These fees, over time, can severely cut into your earnings potential.
For additional information and a more complete discussion, please visit our Variable Annuities page.
If you are weighing your annuity options, we’d be happy to help guide you through the vast array of available annuity products and rider choices – just give us a call. One of our licensed Annuity Specialists will patiently answer all of your questions without the hype or any sales pressure. Our services are freely provided and you will never pay us any fees, loads or sales charges.
The material presented in this article, and elsewhere on this website, regarding variable annuities is for informational purposes only. AnnuityAdvantage is focused on educating and informing consumers regarding their annuity purchase options and assisting them in acquiring the most appropriate fixed annuity products for their individual needs. We are NOT directly involved in the securities industry, nor do we market or sell variable annuities.
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