The Pros and Cons of Variable Annuities

Variable annuities pros and cons are a hotly debated topic;  however, they are gaining a particular degree of attraction in the financial world because of the higher possibility of bigger profits. Funds which are invested in this type of annuity are expected to rise higher compared to fixed annuity because it relies on the stock market. So the chances of gaining a bigger income in the long run are indeed possible. It also offers periodic payments which gives the holder the luxury to budget his monthly earnings and still get the wanted benefits in the future. It also offers death benefits like most annuities. The nominated beneficiary is legally liable to get the amount of purchase payments provided by the deceased holder only if the account’s value is lesser than the guaranteed amount. It will not go beyond that. The most famous benefit of it is it tax deferred benefit. No amount of tax which will be levied to it until the withdrawal of the retirement. It also allows a tax free transactions pertaining to money transfers and in case of withdrawals within the contract, these tax deductions will only be charged at a normal income tax rate which is very similar to a Roth IRA.

Nevertheless, variable annuities not only offer you a lucrative future. It has its own disadvantages. It is prone to decreasing its value if the annuity loses its value which does not happen in fixed annuities. Remember that it rests on the stock market so if the stock loses value the annuity suffers the same fate. It has several charges which reduces its account value and the return on investment like administrative or management fee. Fees are deducted each year to cover the administrative cost of maintaining your annuity. The tax deferred feature will also lose its power the moment you avail of another plan and will levy you a tax penalty of 10% on withdrawals if you do so before the retirement age of 59.5.

Anything that has to do with money requires careful analysis especially if it is something that you worked all your life for. Planning for the future is necessary and a wise person do take time to sit and pause awhile to reflect on how he wishes to embark the last phases of his life.

PeteThe Pros and Cons of Variable Annuities