Are Variable Annuities Good or Bad

Variable annuities are a mainstay among savvy investors because they can provide an ample amount of freedom and empowerment for the investor. Like other annuities, variable annuities are investment vehicles that deliver payments periodically for a predetermined period of time and are bought from an insurance company. Income streams that are created can last ten or twenty years, or for the rest of the investor’s life. Annuities in general, allow the investor to have a predictable stream of income for a specific period of time.

With variable annuities, there are several important elements that should be taken into consideration: The ability to diversify an annuity, institute a beneficiary designee, and defer taxes for a later date. Variable annuities are one of three general annuities offerings for investors. For example, fixed and indexed annuities also exist and provide certain features to investors. All three types are contracts purchased for the promise of a future payment and are usually backed by insurance companies. Each type of annuity has its own positive characteristics and features that may or may not appeal to an investor. Variable annuities offer a unique feature from the others, which allow the investor to choose a beneficiary for their account in the unfortunate possibility that they may die before the collection any benefits.

In addition, variable annuities allow the investor a greater spectrum of freedom to invest in several types of mutual funds based on his aversion to risk. The variety of mutual funds can be vested in stocks, fixed insurance accounts, and or bond funds. Still, as with other annuities, variable annuities are beneficial because they are able to defer taxes in your account. Essentially, this means that the investor does not have to pay any taxes on the income gained on the interest growth, until the investor makes the first withdrawal. To avoid paying the 10% penalty fee investors need to keep their funds in the annuity account until he or she is at least 59.5 years of age.

In addition, with variable annuities, the investor is able to choose the funds they want based on the risk they want to take. Let’s take for example, an older man in his early 70’s. His aversion to riskier accounts will certainly be less tolerable to a woman in her late 20s, and would choose to more fixed level of growth. Considering whether an investment is good or bad should be based on the several factors that are entirely based on the investor’s needs. An investor needs to consider several factors with every investment including the liquidity of the investment; the growth rate, the fees involved, and the risk of the investment.

Annuities in general are not backed up by the FDIC. Like the investment in all annuities, the investor assumes a greater possibility of financial loss if the company issuing the promise of repayment becomes unable to pay. Extremely rare that a company would become in danger, many states have created organizations and groups that offer a certain degree of investor protection. As with any investment, the investor’s risk management should include a full assessment of the issuing insurance company and regularly read the prospectus and quarterly reports. Nevertheless, annuities have earned a solid reputation among seasoned investors in delivering solid benefits, including predictable income streams, tax deferred investments, and control.