Today's Top Ten Fixed Annuity Rates (MYGA)
Pros and Cons of Variable Annuities#
The possibilities are almost endless for diversification and growth using the power of tax deferral made possible by variable annuities#. Variable annuities# operate similar to 401K plans and other qualified retirement plans that allow risk type investments for allocations within the plan. Unlike employer-sponsored plans, there are no limits on how much you can sock away using a variable annuity#. One of the recent comparisons and complaints leveled at both variable annuities# and many employer-sponsored plans are the high fees that tend to cut the overall return and growth of the retirement investments. From 1999 through 2009, variable annuities## have generally not fared well based on a down stock market and not so well against market index funds, since variable annuity# fees are typically higher by about two percent and sometimes more.
**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.
History of Variable Deferred Annuities
Around 1952, TIAA-Cref introduced the first variable deferred annuities# to help teachers save while having the potential to grow their retirement funds with a hedge against inflation. This new type of annuity, being a mixture of insurance and investment, had to be regulated by the state insurance and investment regulatory authorities, which slowed its early development. Regulatory agencies finally embraced this investment-oriented annuity in the seventies, possibly due to the pressure felt by higher than normal inflation. Since then the variable deferred annuity# has become a staple in the financial planning world. It works especially well for younger professionals seeking moderate to aggressive growth with tax deferral.
Deferred Variable Annuity vs. Deferred Fixed Annuity
All annuities other than immediate annuities have a characteristic known as deferral. The purpose of deferral is twofold: First, it refers to money being left in a savings and growth stage over a period of time, also referred to as the accumulation stage. Second, deferral refers to the tax characteristics of deferral, allowing money to grow tax free until it is withdrawn for income. Thus, an immediate annuity is neither deferred for growth nor tax deferral, thus not considered a deferred annuity.
So, what is the distinction between variable deferred and fixed deferred? It is very simple: Fixed is when the insurance institution assumes the risk for your principal and accumulation and variable is when you assume the risk for the underlying investments, principal and accumulation.
Deferred Variable Annuity# Characteristics
- Deferred variable annuities# originated in the U.S. approximately 60 years ago
- They can be purchased in periodic, systematic or lump sum payments
- Deferral in variable annuities# allows the value of the annuity to increase
- After a deferral period, variable annuities# may produce more income
- Deferred variable annuities# have the added advantage of tax deferral
- They can be annuitized providing a lifetime of income; however, it may fluctuate
- They are the opposite of immediate annuities, since immediate annuities begin income soon after they are purchased in a lump sum
- Variable deferred annuities are typically invested in the securities market and the purchaser assumes the market risk
- Deferred variable annuities# are creditor-protected in most states
- Deferred variable annuities# are first **guaranteed by the claims paying ability of the insurer. The underlying invested assets are owned by the client and are not at risk if the insurer defaults
- Check out our deferred variable annuity# calculator
All deferred variable annuities# enjoy tax deferral with no income tax requirement until withdrawal. This may be an advantage over many investments like CDs, mutual fund^s and securities oriented-investments when considering a long term retirement plan. A long term variable annuity# investment may be able to outperform CDs, bonds and treasuries. Reinvesting money that would otherwise be paid out in tax over an extended period of years is always an advantage. In addition, deferred variable annuities# have several benefits that may be beneficial for retirement planning.
Question: What is an approximation of fees that are customary on variable Annuities?
Answer: Administrative: .25%; Mortality: .75%; Income Rider: .75%; Enhanced Death Benefit: .75%; Underlying Investment Expense: 1.5%. Minimum fees on a stripped out variable annuity# are around 2% and fully featured may run as high as 5%.