There is so much ambiguity flying around regarding variable annuities. Bottom line the most important things you should be concerned about Variable Annuities are the fees and risk, but there are other things that hover around Variable Annuities. I am here to expose them in the light.
If you’re a retiree it is okay to consider a variable annuity
when your young, yes its okay to consider high-risk product investments, but as the years go by and you find yourself approaching retirement you should be changing your strategy. A good stage to consider is going from high risk to medium to conservative risk. So as your approaching your last 10-15 years to retirement protecting your nest egg has to be your priority. This is why you should consider staying away from variable annuities, at this point in your life that is not the time to take on more risk and try to give your principle an extra shot on your return.
My money is safe in an annuity
This is not true, remember a variable annuity is an investment in mutual funds. You have no protection on your principle. On the other hand, if you just have a regular annuity this is the case as your principal is guaranteed. If you see the word “Variable” tagged on to Annuity your principle will vary. You are taking on risk as your variable annuity depends on how the market does specifically how your portfolio does. Approaching retirement means to protect your wealth not take your accounts and try one more high-risk shot to make a last-minute gain. Stick with a well sound strategy.
But they said I have low fees
A variable annuity usually has high fees, you should also be looking for hidden fees too. The reason why Annuities get such bad raps is that people often find the fees eat up their accounts. Here are a few fees associated with variable annuities:
- Mortality & Expenses Fees
- Admin & Distr charges
- Mutual Fund Manager Fees
- Income rider fees
- death rider fees
These fees can add up and can take a significant amount of your money after time.
My income rider is my cash value
If your broker/financial advisor tells you that your money is safe and guaranteed you better run and don’t look back. This is certainly not the case. Don’t let the income rider fool you, If they tell you that your income rider will grow around a certain percentage per year do not take this as a great return if you considered walking away cause you think your rider account is growing at a certain percentage your wrong. Take for example if you’re rider is growing let's say at 5% per year and you decide to walk away you still have to consider all the fees that will be taken out and you have to consider what your cash accumulation value is based upon the time of exiting the market.
Some people misinterpret the income rider, to clarify this point an income rider means that you can expect a guaranteed pension for life and if you outlive your money the company will pay you that amount of income for the rest of your life.
My income rider is the best way to set my self up for the rest of my life
Yes, you can call this a life pension that you can possibly buy for your self. Even if your account runs out of money the company will still pay you, The only thing people don’t realize is that the money they are giving you is your own money. Also if you look at the fees you pay and add them up most people do not notice that the fees you pay are a significant amount, so you're paying them a good portion of fees just to pay you back your own money. So you need to consider what your percentage of your fees are and what your percentage of your distributions are and this will tell you how much you should be making just to have your accounts cash value to stay the same! When you look at it this way it totally changes your perspective on income rider as a way to receive income for life.
When you start the annuitization phase your income will increase
Don’t let your financial advisor try to sell this dream. Basically, you would have to realize constant percentage earnings in the market in order to realize this dream. Although history has shown this has happened in the past doesn’t mean that it will happen again. It is not very likely to see a winning streak of straight growth in the market. Please consider this a warning sign.
My family is guaranteed the death benefit
If you decide to choose the rider death benefit this doesn’t necessarily mean they will receive a lump sum. If your account happens to run out of money, of course, the company will still pay you an income, but the day you pass away your family will no longer receive any death benefit.
Retirement is not a time to take a gamble on your accounts. Variable Annuities do serve a purpose but when not used in the right strategies they can be a detriment to someone's retirement plans. Have a good solid retirement plan in place. Take all areas of concern into consideration. Ask questions, do your research and seek out professional advice.
If you are in the greater Austin area feel free to reach out to me. I can help you set your financial retirement plan on a solid foundation for your future. Call me today to set an appointment.
Rene Gonzales
Senior Representative
c. 512-568-7203
e. Rene.Gonzales@Primerica.com
www.Primerica.com/ReneGonzales
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