Variable Annuities 101 The Basics

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Part of working life in America is the expectation that one magical day beyond the horizon of a 65th birthday we will be able to enjoy not having to work anymore and be able to retire. The reality is though that retirement for may Americans cannot depend on retiring comfortably, or in some cases ever. Fewer and fewer employers in the U.S. are offering retirement options, but many people are still able to create a nest egg through other options — like buying annuities. There are a few different types of them, but variable annuities are a popular choice.

What Are Annuities?
Variable annuities are — of course — a type of annuity, which in simplest terms is an insurance product that people can buy that will in some way create a source of income (usually in retirement). Rather than dropping on large annuity lump sum payment for later dispersal, variable annuities allow owners to choose a few different investments, and the amount the annuity will pay out in the end is dependent on the performance of those investments.

The Advantages
The advantages of buying variable annuities is that they have more growth potential than other types of annuities, since there is more than one investment and are often well diversified. This type of annuities is also ideal for long term gain and is tax deferred.

The Disadvantages
There are disadvantages of variable annuities. Since owners invest with their annuities, there is no guaranteed payout as it depends on how well (or poorly) the investments are performing. This is unlike other types, like fixed annuities, which do have a guaranteed payout. Variable annuities also do not get certain tax benefits like other types of annuities do, and there are high fees associated with them.

Buying annuities can be a smart choice for people who want to start preparing for retirement, but the right one depends on what the owner’s goals are. There are three other major types of annuities, and each one has its advantages and disadvantages. Helpful links.