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.
Are variable annuities guaranteed?
Although variable annuities carry the potential of higher returns than fixed annuities, they don't offer a guaranteed payout.
What is the downside of a variable annuity?
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.
Are variable annuities good or bad?
Variable annuities are designed to be long-term investments, to meet retirement and other long-range goals. Variable annuities aren't a good choice if you don't have other investments to meet emergency and other short-term needs. Taxes, penalties and insurance company charges may apply if you withdraw your money early.
Why is a variable annuity bad?
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 advantages of a variable annuity?
With a variable annuity, any growth in your account is tax deferred until you begin taking withdrawals at a later date (when you may be in a lower tax bracket). Thus, all the money that would have been paid annually in taxes stays in the account with the opportunity to grow until it is withdrawn.
Is a fixed or variable annuity better?
A fixed annuity provides more security of principal than a variable annuity, but has limited upside potential. When you invest in a variable annuity, you accept more short-term volatility in that the value of your investment will fluctuate with the stock and bond markets. But you have a shot at higher returns.Dec 3, 2004
What does Suze Orman say about variable annuities?
Reality: Orman explains that a variable annuity will only save you on taxes in the short run. Though you do not pay taxes when you buy or sell a mutual fund within the annuity and you do not pay taxes on year-end distributions, there are other tax disadvantages.
Why choose a variable annuity over a fixed annuity?
Variable annuities offer many of the same benefits as fixed annuities, including tax-deferred growth and a death benefit. Unlike fixed annuities, however, you control where the value in your contract will be invested. This gives a variable annuity the potential for higher returns than a fixed annuity.
Can you lose all your money in a variable annuity?
You can lose money in a Variable Annuity. Variable annuities are investment-based retirement plans. You are investing in stocks, bonds, mutual funds, etc. If the investment performance is negative, you will lose money.
Can you lose money in a fixed annuity?
You can not lose money in Fixed Annuities. Fixed annuities do not participate in any index or market performance but offer a fixed interest rate similar to a CD.