The Pros and Cons of Variable Annuities in Today’s Market | Best Acces Insurance
A variable annuity is a contract between you and an insurance company, designed to combine investment growth with long-term income. Unlike fixed annuities, variable annuities let you invest in subaccounts that resemble mutual funds, giving you growth potential based on the performance of the market.
In today’s market, with rising interest rates, ongoing market risk, and increasing retirement concerns, many investors are asking whether variable annuities are a smart move. This article will break down the pros and cons, helping you decide if this type of annuity fits into your retirement plan.
The Pros of Variable Annuities
The Pros of Variable Annuities | Best Access Insurance
Variable annuities offer several advantages that can help investors pursue retirement security.
- Tax-Deferred Growth
Contributions and earnings grow tax-free until you withdraw. This makes variable annuities a strong supplement for long-term savers who have already maxed out IRAs or 401(k)s. - Potential for Higher Returns
Because variable annuities are based on the performance of market investments, they may outperform fixed-rate products and outpace inflation. - Income Riders
Riders can provide guaranteed income for life—even if your investments underperform. This can protect retirees from running out of money. - Death Benefits
Most annuity contracts include a death benefit. Your beneficiary may receive at least your original investment, ensuring some financial protection. - Flexibility in Annuity Options
You can often switch subaccounts as market conditions change, tailoring your annuity to your risk tolerance. - Inflation Hedge
Since your account is linked to the market, your annuity may grow faster than inflation—something fixed annuities often cannot do.
The Cons of Variable Annuities
Despite their benefits, variable annuities also come with some notable drawbacks.
- High Fees
Costs include mortality and expense fees, administrative charges, rider fees, and fund expenses. These can reduce the overall value of your annuity. - Market Risk
Unlike fixed annuities, the account balance can drop if the market declines. This makes them unsuitable for very conservative investors. - Complexity
An annuity is a contract that can include multiple riders and fine print. Many investors find them confusing. - Surrender Charges
If you withdraw money early, you’ll often face a surrender charge that reduces your payout. - Liquidity Concerns
Because deferred annuities tie up funds, they may not suit investors who need quick access to cash. - Tax Treatment of Withdrawals
When you withdraw gains, they are taxed as ordinary income, not capital gains. An early withdrawal before age 59½ may also trigger a penalty.
Today’s Market Context for Variable Annuities
Today’s Market Context for Variable Annuities | Best Access Insurance
One major reason people choose fixed annuities is the tax-deferred growth. Your principal
Variable annuities are affected by what’s happening in the economy right now. With higher interest rates, products like CDs and bonds look more appealing, but variable annuities with guaranteed interest features can still offer something extra. At the same time, today’s market ups and downs make many people look for riders that promise stability, even if those features cost more.
People are also living longer, which makes guaranteed income options more valuable than ever—nobody wants to outlive their savings. On top of that, many retirees don’t have pensions anymore, so annuities can help fill the gap in retirement income. Finally, new rules are making sure financial advisors put their clients’ best interests first, which means it’s easier to understand what you’re really getting when you buy an annuity.
Who Should Consider Variable Annuities?
Variable annuities can be a good fit for:
- Long-term investors who’ve maxed out other retirement plan options.
- People seeking both growth potential and guaranteed income.
- Retirees who want to leave a death benefit for loved ones.
They are not ideal for investors who need liquidity, dislike fees, or are overwhelmed by complex financial products.
Conclusion
Variable annuities can offer unique advantages—like tax-deferred growth, income riders, and death benefits—but they also carry market risk, fees, and liquidity challenges. Whether a variable annuity belongs in your retirement strategy depends on your financial goals and risk tolerance.
Before committing, we encourage you to speak with Best Access Insurance. Our licensed advisors can walk you through how variable annuities work, what annuities offer, and help you build a retirement plan that fits your lifestyle.
FAQs About Variable Annuities
How do variable annuities work?
Variable annuities work by combining insurance protection with investment subaccounts similar to mutual funds. Returns are based on the performance of these investments. Contact Best Access Insurance today to see if they fit your retirement income goals.
What are the main pros and cons of variable annuities?
Pros include tax-deferred growth, potential for higher returns, and lifetime income options. Cons involve market risk, high fees, and liquidity issues. Best Access Insurance can help you weigh these trade-offs for your retirement.
How do variable annuities compare to fixed annuities?
Fixed annuities offer a guaranteed interest rate, while variable annuities depend on market performance. One prioritizes security, the other growth potential. Talk with Best Access Insurance to choose the right annuity options for your goals.
Is a variable annuity tax-deferred?
Yes, variable annuities grow on a tax-deferred basis until you withdraw. Withdrawals are taxed as ordinary income. Let Best Access Insurance guide you through the best tax strategy.
Can I withdraw money early from a variable annuity?
You can, but early withdrawal often leads to penalties and surrender charges. Gains may also face tax penalties. Best Access Insurance can help you explore smarter withdrawal strategies.
What is an income rider?
An income rider guarantees lifetime payouts, regardless of market performance. It adds a cost but offers guaranteed income. Ask Best Access Insurance if a rider is right for your plan.
What is a death benefit in a variable annuity?
A death benefit ensures beneficiaries receive a payout, often equal to the initial premium or a stepped-up value. This provides legacy protection. Best Access Insurance can walk you through your available death benefit options.
What fees come with a variable annuity?
Common charges include mortality and expense fees, admin costs, and rider expenses. These reduce your net return. Review your annuity contract with Best Access Insurance to understand the costs.
Are variable annuities good for retirement income?
Yes, they can provide guaranteed income through riders and market growth potential. However, costs can be a drawback. Best Access Insurance can design a retirement plan that balances income with flexibility.
What happens if interest rates rise?
Rising interest rates can make bonds more appealing, but variable annuities with guaranteed interest features may still fit a retirement plan. Contact Best Access Insurance to learn which annuity products stay competitive.
How safe are variable annuities?
They carry market risk, unlike fixed products. However, riders can reduce risk exposure. Best Access Insurance can help you find the right balance of risk and protection.
What is a surrender charge?
A surrender charge is a fee for early withdrawals from an annuity. It decreases over time. Best Access Insurance can review your contract so you don’t face unnecessary charges.
Are variable annuities suitable for everyone?
No, they best suit long-term investors with higher risk tolerance. Those needing liquidity should look at other products. Best Access Insurance can help determine if this is the right fit for you.
Do variable annuities guarantee a payout?
Payouts depend on whether you add riders or choose annuity options with guaranteed income. Without them, your balance fluctuates. Ask Best Access Insurance how to secure a reliable payout.
How do deferred annuities work with variable annuities?
Deferred annuities delay payouts until a later date, allowing more tax-deferred growth. This can boost retirement funds over time. Best Access Insurance can explain how deferring works with your financial goals.