Benefits and Costs of a Variable Annuity

The new variable annuity has become a staple in many people's financial plan. The reason is the guarantees offered by the new variable annuity. The guarantees come in both living benefit and death benefit form. Living benefits offer guarantees to make certain the owner doesn't lose if the stock market or other investments drop below freezing. The death benefits guarantee the beneficiary a specific amount regardless of the stock market performance.

A variable annuity is nothing more than mutual funds with tax sheltering. What makes the new variable annuities so much different is that they include popular funds from a plethora of fund families and of course, contain guarantees no mutual fund can offer.

The tax sheltering of the mutual fund is a benefit for more than tax-free growth. If you own mutual funds and attempt to rebalance as the markets fluctuate, at each rebalancing you have a reportable tax incident. As anyone that actively manages their mutual fund portfolio can attest, it becomes a nightmare to track all the changes in a rapidly moving market. The tax sheltering of the annuity eliminates all the record keeping involved in mutual funds.

Variable annuities aren't all alike, however. Each of them has different surrender periods, charges, funds and guarantees. The interior charges on a variable annuity affect the investment return. The easiest method of finding the best variable annuity is to compare the rate that you'd receive if you invested into the product. Many of the companies offer hypotheticals based on past experience. While they aren't predictions of future returns, they do give you an idea of the policies with the best performing funds and lowest costs.

Variable annuities have guarantees on many products. The guarantees, known as living and death benefits, are different for every policy type. Some of the living benefits offer the guarantee that you'll never lose a penny of principal as long as you leave your funds in a specified length of time. The length of time varies from policy to policy and the some policies actually guarantee more than just the principal but also a specified return on your funds.

Other living benefits guarantee that if you take a specified percentage of income from your policy, you'll never run out of fund. Even if your real market value drops, the company has a second column that shows a guaranteed growth. If you withdraw five percent every year and the guarantee is five percent, even if the market drops ten percent every year, you'll still get five percent of the base amount until you die. If the market increases however, often these policies offer the right of resetting the base amount used to calculate the payment. Of course, if you access more than the five percent allowable, the guarantee cancels.

Death benefit guarantees are important also, particularly if the investments in the variable annuities are heavily loaded in the stock market during a volatile time. The principal may shift wildly as the market fluctuates, but the investor knows that his principal is safe and secure when he has a death benefit guarantee on the balance.

Variable annuities are wonderful retirement product but you need to know what you're buying before you dive in headfirst. It pays to decide what you need, compare annuities and seek the advice of a trained annuity specialist before you purchase any variable annuity.

Jonathan Tyler writes about investments for retirement including annuities insurance. Annuities can be a smart investment tool, but there are many different options to choose from, and few investors truly grasp how to properly assess the information available. If you would like to learn more about getting a variable annuity or the other types of retirement investments available, come see us at the above links.

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Variable Annuities - Saving For Retirement While Keeping Your Options Open

If you're planning your investments for retirement, consider using variable annuities as part of your retirement program. Variable annuities offer the diversification so necessary for a truly safe retirement savings but also have some guarantees that may be perfect for your needs. Of course, like any good program, you don't necessarily make it the only investment you use for retirement. However, since each variable contains all the asset classes necessary for a balanced program, you'll find that variable annuities are suitable for a large portion of your retirement assets.

Variable annuities often contain mutual funds of all types and from a variety of companies. Some of the newer products also contain funds in various asset categories including sector funds. Sector funds are specialty funds that target special sector in the economy, such as technology or banking. Other mutual funds also contain specialty funds like gold or precious metals. You can tell that there's a broad selection from which to choose.

In today's economy, it's difficult to know whom to trust. It seems no matter how large the company, they accept a bailout check from the government. That's one advantage of a variable annuity. While the company that sells the variable should have a strong rating, the company doesn't invest the money in its general fund but with many different mutual fund companies.

The diversification of the companies that hold your assets is another benefit of a variable annuity not found in mutual funds. The chances you losing your assets if of any of these companies sink is small since both insurance companies and security companies have protection similar to the FDIC, but it does help you sleep better to know that you've didn't put all your eggs in one basket.

Variable annuities offer some guarantees that might be perfect for the person that wants an income from their policy. The guarantees for these people are the living benefits. Many of the companies offer the living benefits for an additional fraction of a percent of you account balance.

Some of the living benefits vary from a guaranteed return of your principal or higher, no matter what the market does or how your account fluctuates. Others guarantee that you'll always have a specific return, such as 5 to 7 percent, as long as you take a cash stream no larger than that percentage. If you pull out a lump sum, all guarantees of this type cancel.

The living benefits are perfect for specific situations. If, however, you're one of the lucky people that don't need to use any of the assets in retirement but simply want to pass the funds to heirs, there are death benefit guarantees to add to policies. Death benefit guarantees vary from a guaranteed return of principal to a guaranteed growth percentage per year. Like the living benefits, death benefit guarantees cost a percentage of your contract value on an annual basis.

As you can tell, variable annuities aren't simple contracts. In order to find the best one with the appropriate provisions for your situation, it's important to talk to an annuity specialist or seek information online. The selection is broad a varied, so don't sign up for the first policy you see. Take time to investigate this important asset. Variable annuities can be a huge benefit to your retirement years if you choose on that fits your situation.

Jonathan Tyler provides information and strategies for retirement. If you're interested to learn more about variable annuities or get annuity quotes without obligation, come see us.

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