What are variable annuities?

A variable annuity is a contract between you and an insurance company, under which the insurer agrees to make periodic pay- ments to you, beginning either immediately or at some future date. You purchase a variable annuity contract by making either a single purchase payment or a series of purchase payments.

What is a variable annuity and how does it work?

A variable annuity is a tax-deferred retirement vehicle that allows you to choose from a selection of investments, and then pays you a level of income in retirement that is determined by the performance of the investments you choose. Compare that to a fixed annuity, which provides a guaranteed payout.

What are the 3 types of annuities?

The main types of annuities are fixed annuities, fixed indexed annuities and variable annuities.

Are variable annuities a bad investment?

Drawbacks of Variable Annuities A variable annuity’s biggest disadvantage is its cost. Variable annuities can charge high fees. These include administrative fees, fees for special features and fund expenses for the mutual funds you invest in. Also, there’s the mortality and expense (M&E) risk charge.

What are the risks of a variable annuity contract?

Variable annuities involve investment risks just like mutual funds do. If the investment choices you selected for the variable annuity perform poorly, you could lose money. Contract fees may go towards your financial professional’s compensation.

Can variable annuities lose value?

Insurance companies invest your annuity premiums in mutual funds. The subaccounts inside your variable annuity lose money whenever the underlying securities drop in value. Theoretically, your variable annuity could become worthless if your insurance company makes really poor investment decisions.

Do variable annuities guarantee payments for life?

A variable annuity can provide a regular income stream for life, but when you die, the insurance company can keep what’s left. If you withdraw funds before age 59½, you usually must pay a 10\% tax penalty. You may have to pay a surrender fee if you need to get your money out early.

What are disadvantages of annuities?

Annuities tie money up in a long-term investment plan that has poor liquidity and does not allow you to take advantage of better investment opportunities if interest rates increase or if the markets are on the rise. The opportunity cost of putting most of a retirement nest egg into an annuity is just too great.

Are Variable Annuities good for seniors?

Variable annuities have the potential for payments to increase or decrease based on market fluctuations. A senior without a pension can turn to annuities as an alternative source of steady income. You won’t risk the investment plummeting in value or owing exorbitant tax fees.

Can you lose principal in a variable annuity?

Variable Annuities: As these investments go up or down, the value of your variable annuity will also rise and fall. This means that it is possible to lose money, including your principal with a variable annuity if the investments in your account don’t perform well.

Do Variable annuities guarantee payments for life?

What Is a Variable Annuity? A variable annuity is a contract between you and an annuity provider — usually an insurance company — in which you purchase the ability to receive a stream of income for your life or a set period of time. The money you pay is allocated to an investment portfolio.

What is a variable annuity keykey?

Key Takeaways 1 A variable annuity is a contract with an insurance company that includes investments you choose and a fixed insurance component. 2 It is designed to provide retirement income. 3 Still penalties can be incurred for early withdrawals. 4 Variable annuities are not suitable for short-term financial goals.

What is the difference between a subsub account & a variable annuity?

Sub accounts and mutual funds are conceptually identical, but sub accounts don’t have ticker symbols that investors can easily type into a fund tracker for research purposes. Among annuities, variable annuities differ from fixed annuities, which provide a specific and guaranteed return.

What is the difference between deferred and immediate variable annuities?

In a deferred variable annuity, you delay receiving income payments from your contract until some point in the future, giving more time for your balance to grow. In an immediate variable annuity, you start collecting payments immediately after signing up and depositing your money.