What Are the Variable Annuities Pros and Cons?
It has probably happened to you at one point during a meeting with an insurance company or a financial advisor when they asked you if you are interested about annuities. Some people say they are good while others have not so good experiences about these financial products. In the last few years, due to the market volatility, variable annuities are again being reintroduced to circulation again. Retirees and those who are close to retirement are taking a second look at these annuities and assessing the variable annuities pros and cons. The variable annuities pros and cons are important since while there are some promising benefits to using these investment products, there are also some features that you have to be careful about.
Before looking at the variable annuities pros and cons, let’s have a refresher. Annuities are offered mostly by insurance companies and are mixtures of life insurance and investment products. The annuity promises you continuous income in exchange of a lump sum payment or scheduled payments one of the good aspects of the variable annuities pros and cons would have to be the steady flow of income in the form of period payments that the insurer gives you when you reach the age of retirement. Annuities can be provided in an instant (immediate payments) or it could also be a standard deferred annuity.
The variable annuities pros and cons vary from person to person depending on how they will use the money and if they have disposable funds that they are willing to put into an annuity. Here are some good aspects of the variable annuities pros and cons. First, it offers flexibility and it also gives you more options for investments. With variable types, you can have sub-accounts from numerous mutual funds. If you have knowledge about investing in mutual funds, you can definitely change your investment strategies to best suit your goals.
Of the numerous variable annuities pros and cons, another good thing would be the tax deferral feature of your gains which are similar to the IRA and 401k where the earnings and contributions are tax deferred until the time you make a withdrawal of funds. Another promising factor of the variable annuities pros and cons would be the chance to enjoy a lifetime of income when you select to have the payments paid for you each month. The insurance company can guarantee you that you have monthly income when you reach retirement age
However, it is also important to understand the negative side of the variable annuities pros and cons. One of them would be that if you decided to annuitize and opt to get income for life, you cannot reverse that decision. You cannot opt for a lump sum payment. Thus, always take some time to analyze your options if you will break even and receive all the money that you feel you deserve. Another negative aspect of the variable annuities pros and cons would be the lock up. The funds that you put on annuity will be kept until you reach 59.5 years of age. If you decided to make early withdrawals, you pay a 10% penalty or more.
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