Many Americans are incorporating variable annuities into their retirement and investment plans. Before buying a variable annuity, you should know a few things. In recent years, variable annuities have been the subject of negative media coverage, which may discourage individuals from purchasing these portfolios. It would be best if you asked your insurance agent, broker, financial planner, or any other financial professional series of questions to determine whether a variable annuity is the best option for you. Request a prospectus if possible; it contains vital information about the annuity contract, such as fees, investment options, death benefits, and annuity payout options. It would help if you compared the annuity’s benefits and costs to those of other variable annuities and other types of investments, such as mutual funds. What are Variable Annuities? It is a contractual agreement between you and an insurance company where the insurer agrees to pay you a fixed sum of money at a predetermined time or a later date. A variable annuity contract is purchased with either a single payment or a series of payments. Variable annuities provide a variety of investment options. As a variable annuity owner, the value of your investment will change based on the performance of the investment options you select. A variable annuity’s investment options are typically mutual funds that invest in bonds, stocks, and money market instruments. Typically, variable annuities are invested in mutual funds; there are several important ways that variable annuities differ from mutual funds. These differences include the following: First, variable annuities allow you to receive periodic payments for the rest of your life (or the life of your spouse or anyone else you choose). It shields you from the risk of outliving your assets after retirement. Secondly, a death benefit is included with variable annuities. Suppose you die before the insurance company starts making payments to you. In that case, your beneficiary will receive at least the amount of your purchase payments. Suppose your account value is less than the guaranteed amount at the time of your death. In that case, your beneficiary will benefit from this feature. Thirdly, variable annuities allow for the postponement of taxation. That is, until you withdraw your money, you pay no taxes on the income and investment gains from your annuity. You can also transfer money within a variable annuity from one investment option to another without paying tax at the transfer time. On the other hand, the earnings from a variable annuity are subject to regular income tax rates when withdrawn. Cost of Variable Annuities Investors have labeled variable annuities as mediocre investments because of their high costs. You will have to pay several fees when you buy a variable annuity. Before investing, make sure you understand all of the expenses. These fees reduce the value of your account and the return on your investment. They frequently consist of the following: Surrender Charges The insurance company will typically impose a “surrender” charge, which is a kind of sales charge if you take money out of a variable annuity before a predetermined amount of time has passed since you made a purchase payment (typically six to eight years, but occasionally up to ten years). Your financial advisor receives a commission for referring you to a variable annuity. The surrender charge is typically a percentage of the amount withdrawn. It gradually decreases over several years, known as the “surrender period.” For example, a 7% charge may apply in the first year following a purchase payment, 6% in the second year, 5% in the third year, and so on until the eighth year, when the surrender charge is no longer applicable. You may be able to withdraw a portion of your account value each year without incurring a surrender charge, such as 10% or 15% of your account value. Death and Expense Risk Charge This fee is calculated as a percentage of your account balance, typically in the range of 1.25 percent per year. The insurance company receives this fee as compensation for the risks it assumes due to the annuity contract. Insurer selling expenses, such as the commission paid to your financial advisor for selling you the variable annuity, are sometimes covered by the insurer’s mortality and expense risk charge profit. Fees for Administrative Services The insurer may deduct charges for record-keeping and other administrative expenses. This could be charged as a flat fee (say, $25 or $30 per year) or as a percentage of your account value (typically in the range of 0.15 percent per year). Expenses of the Underlying Fund Indirectly, you will also pay the fees and expenses imposed by the mutual funds that serve as the underlying investment options for your variable annuity. Charges for Additional Features Some variable annuities offer additional charges for special features such as a stepped-up death benefit, a guaranteed minimum income benefit, or long-term care insurance. You may also be liable for additional fees, such as sales loads at the start of your investment or fees for moving a portion of your account from one option to another. Riders It is an additional benefit that can be added to your variable annuity. A rider could be purchased to ensure you continue receiving lifetime income even if your investment balance runs out of money. In exchange, you must pay an additional fee for the rider each year. Ask Questions Your financial advisor should be able to answer any questions about potential fees or costs. Variable annuity salespeople must inform their clients about whether the product they pitch is appropriate for their specific investment needs. You may ask them as many questions as you like. And note their responses so there is no confusion later. In variable annuity contracts, “free look” periods of 10 or more days are standard, during which you can cancel your contract without incurring surrender charges and recoup the amount of your initial investment. Your variable annuity advisor will be available to answer your questions during this time.
Contact Information:
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Phone: 8139269909
Bio:
For over 30-years Joe Carreno of The Retirement Advantage has been a Federal Employee Retirement System specialist (FERS) as well as a Florida Retirement System specialist (FRS) independent advocate. An affiliate of PSRE (Public Sector Retirement Educators), a Federal Contractor & Registered Vendor to the Federal Government, also an affiliate of TSP Withdrawal Consultants. We will help you understand your FERS & FRS Benefits, TSP & Florida D.R.O.P. withdrawal options in detail while recognizing & maximizing all concurrent alternatives available.Our primary goal is to guide you into retirement with no regrets; safe, predictable, stable, for life. We look forward to visiting with you.
Disclosure:
Not affiliated with the U.S. Federal Government, the State of Florida, or any government agency. The firm is not engaged in the practice of law or accounting. Always consult an attorney or tax professional regarding your specific legal or tax situation. Although we make great efforts to ensure the accuracy of the information contained herein we cannot guarantee all information is correct. Any comments regarding guarantees, safe and secure investments & guaranteed income streams or similar refer only to fixed insurance and annuity products. Fixed insurance and annuity product guarantees are subject to the claimsâ€paying ability of the issuing company. Annuities are long-term products of the insurance industry designed for retirement income. They contain some limitations, including possible withdrawal charges and a market value adjustment that could affect contract values. Annuities are not FDIC insured.
