The article discusses the concept of variable annuities, which are contracts between individuals and insurance companies. These annuities offer the potential for growth based on investments in mutual funds, with tax-deferred growth until withdrawals begin. Unlike fixed annuities, variable annuities do not guarantee a specific rate of return and can involve higher risks due to investments in stock mutual funds.
Variable annuities provide various payment options, such as straight life, joint life, life with period certain, joint life with period certain, systematic withdrawal, and lump-sum. They offer the potential for higher growth compared to fixed annuities but come with higher fees and commissions. These fees can include commissions, administrative fees, surrender charges, investment expenses, and mortality expenses.
Pros of variable annuities include higher growth potential, the promise of lifetime income, potential income for beneficiaries, and long-term tax deferral benefits. However, they also have cons such as high fees, distributions taxed as ordinary income, potential for significant loss, low liquidity, and lack of government guarantees.
Variable annuities are complex financial products that require careful consideration. They can provide growth potential and income benefits but also involve risks and costs that individuals should fully understand before investing. Consulting a financial professional is advisable to assess whether a variable annuity aligns with one’s financial goals and risk tolerance.
