Deferred Variable Annuity Disadvantages

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 at least a couple of percents higher. An approximation of fees that are customary on variable annuities^# are as follows: Administrative: .25%; Mortality: .75%; Income Rider: .75%; Enhanced Death Benefit: .75%; Underlying Investment Expense: 1.5%. As you can see, minimum fees on a stripped out variable are around 2% and a fully featured variable annuity^# may run as high as 5%. The problem with fees is obvious. If your investments are down 20% and you add fees, you are down about 25%. So fees actually would comprise around 20% of your loss, which does a real number on your principal. In down markets the equation does not work well for variable annuities^#.
  

Deferred Variable Annuity vs. Deferred Fixed 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. Fixed annuities normally have minimal or no fees and their very nature allows to principal or accumulation.

Deferred Variable Annuity Disadvantages

• Unsuitable investment advice and planning
• Term commitment over several years
• High surrender fees
• Some variable annuities^# do not allow additional contributions
• Deferral in variable annuities^# allows the value of the annuity to increase or decrease
• Exposure to loss of principal
• After a deferral period, a variable annuity^# may or may not produce more income
• Variable deferred annuities can be annuitized providing a lifetime of income; however, income will fluctuate based on underlying investments
• Variable deferred annuities are typically invested in the securities market and the client assumes the market risk
• 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 of forfeiture if the insurer defaults
• Variable annuities are not backed by the SIGA (State Insurance Guarantee Association)
• High fees, 2-5% of the annual account balance is typical

Disadvantages of Deferred Variable Annuity Summary

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 investment choices are available in a variable annuity^#?

Answer: The choices are limited by the carrier and can be changed or removed without further notice. It is important to go with a variable annuity^# that offers sound investment choices that match your investing criteria; however, the insuring company has the right to change those choices at any time it sees fit.