Variable Annuities Pros and Cons List
When you’re near retirement on in retirement itself, it might be amazing too hear about the product named variable annuity, which guarantees a safe amount of income coming in for the rest of your life, which certainly sounds amazing. Unfortunately, it really isn’t like that. Variable annuities are expensive and complex products that don’t really suit everyone.
List of Pros of Variable Annuities
1. Pay Stream
Variable annuities give the contract holder a safe stream of money coming in for as long as they are alive, which protects them against the possibility of them outliving their own assets. This, in a certain twisted way, allows to live life to its fullest potential, until the very end.
2. No Taxes
Variable annuities are tax-deferred investments, which means taxes aren’t really going to be a problem for you anymore. As long as you don’t withdraw your money, your variable annuities aren’t going to give you tax problems at all. With this, you can increase the amount of investments you have year after year, without having to worry about taxes.
3. Death Benefit
Since people who are eligible for variable annuities are at an advanced age, it is possible for them to choose someone to benefit from their death (putting all soap opera lessons aside), and to earn a designated amount of money. This means that even if you die, someone is going to receive money from your variable annuities.
List of Cons of Variable Annuities
1. High Expenses
Variable annuities aren’t perfect. Fees and expenses can actually be a lot higher than what one could ever expect them to be. Fees can include things such as insurance and contract changes, administrative costs, fund expenses and even risk charges – as if you didn’t have enough risks before the variable annuities.
According to experts, variable annuities have a fee that runs annually from around 2 % to 2,5 %, which doesn’t really seem like a lot, and even the ones that go higher don’t really go past 4 % to 5 %. Nevertheless, if you decide to withdraw your money before you are 60 years old, you are going to have to pay a 10% penalty to do so. It all adds up to a huge penalty.
3. Taxes Come at Once
Although you aren’t really taxed before you withdraw your money, as soon as you do, all your gains are going to be taxed at once. The thing is, they are all taxed at a normal rate, as opposed to long-term capital tax rate. If you save up for a lot of years, the taxes are certainly going to take a huge toll on the amount of money you managed to save over the years.