Variable annuities are one of the most debated financial products on the market. Critics call them expensive and complex; advocates praise their tax-deferred growth and guaranteed income features. The truth? Whether a variable annuity is right for you depends entirely on your individual situation.
What Is a Variable Annuity?
A variable annuity is an insurance contract that allows you to invest in a selection of sub-accounts (similar to mutual funds). Your account value fluctuates based on the performance of your chosen investments. Many variable annuities also offer optional riders that can guarantee a minimum income stream in retirement.
Potential Benefits
- Tax-deferred growth: You won't pay taxes on investment gains until you withdraw the money.
- Guaranteed income options: Many contracts offer riders that provide a guaranteed income for life.
- No contribution limits: Unlike 401(k)s and IRAs, there's no cap on how much you can invest.
- Death benefit: Most contracts include a death benefit that protects your beneficiaries.
Considerations
- Fees: Variable annuities typically have higher fees than mutual funds, including mortality and expense charges, administrative fees, and rider costs.
- Surrender charges: If you withdraw money early, you may face surrender charges.
- Complexity: These products can be difficult to understand fully.
The key is to work with a financial advisor who can assess whether the benefits of a variable annuity align with your retirement goals and risk tolerance.
Content Disclaimer: Some of this material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.