An annuity is a contract between the insured and the insurance company and its primary objective is that of securing some of the money the buyer pays as premiums into a saving account which gains cash value over time. A variable annuity works in the same way as a normal annuity, the difference being that it pays a variable rate of return. A variable annuity also implies a higher risk, as the insured can’t know how much the return of the investments will be. It can be higher or lower, but this depends on a large series of economical and market factors.
The biggest question is why would you choose variable annuities over fixed ones? Many people choose the first over the second because they can afford the risk and they want a potential growth of the investment. This is not recommended if you are not familiar with finances.
It is very important to have a clear picture of your overall financial situation. Variable annuities are not for everyone. If you need help choosing a plan, consider requesting the help of a good financial adviser whom you can trust. Discuss with your financial adviser all the pros and cons of such an investment. Don’t be stubborn and listen carefully to his or her advice.
There are many different Pros and cons of variable annuities investment, and before you go ahead and make the investments make sure that you have a variable annuity explained to you. When you are investing money to prepare for you future, you want to make sure that you are going to have little risks, and as large of gains as you can possibly accumulate. A variable annuity is a very popular option for many people to use who want want plan for their retirement, however is isn’t for everyone.
The upside to these types of investment is that they normally have a good return rate, and there is usually some type of insurance involved so that you won’t lose a large amount of money. This will allow you to be a little more stress free, since you know the money is going to be there when you decide to take it out. There are also many different tax benefits that you are going to get from these types of investments, so that is a huge bonus as well. There are some downfalls though.
One of the major downfalls of a variable annuity is that you have to pay very high premiums every month or year, and you also get penalized if you need to access the money before it reaches maturity. You also have to pay a fee to have someone managing your funds, and this can be a lot of money out of your earnings that you could be saving. There are fees for the insurance and for the seller, and most of the performance earnings that you are making are going to go back into the sellers pockets.
If you are getting close to retirement, this may sound like a good option for you, but you want to avoid it if you possibly can. You will have a lot of different costs and lost profits with a variable annuity, and that is all money that you could be using and saving twoards you future. Talk with an adviser about some different options that you can try to start saving for tomorrow.