Variable Annuities

Logical, Flexible and Tax-Deferred

What is a variable annuity?

While Social Security, pension plans, IRAs and Keoghs are vital for a comfortable retirement, many people will find it necessary to supplement these with other investments. An increasingly popular retirement supplement is the variable annuity.

An annuity provides a means of reserving certain funds for tax-deferred growth. A variable annuity allows you to select from a family of mutual fund portfolios. You, rather than the insurance company, decide where to allocate your money and how much risk to take.


Invest at your own pace

Several features distinguish the variable annuity as a solid building block for your retirement security. While there are certain minimum amounts for the purchase of annuities and for additions, there are no maximums. This is a highly advantageous way to invest. You may begin with as little as $1,000, and subsequent investments may be as low as $25.


Choose a diversified investment

Annuities are issued through life insurance companies. The separate account portfolios (stock funds, bond funds, money market funds, global funds, etc.) are managed by professional investment management firms affiliated with the underwriting insurance company. An advantage of a variable annuity is that your assets are not commingled with the general assets of the insurance company that issues the variable annuity. Through a variable annuity, you may invest in as many separate accounts as are suitable for your investment strategy. You may transfer between separate accounts as often as you desire to accommodate your changing financial situation. Unlike transfers within a family of mutual funds, transfers between separate variable annuity accounts are not taxable events. This flexibility permits the owner to choose the most appropriate investment at any time. Considering your specific situation and risk tolerance, you may choose from a variety of mutual fund alternatives such as blue chip stocks, international stocks, growth stocks, and various bond portfolios.


Postpone your tax liability

Since an annuity allows you to delay paying taxes, you pay them at your discretion. If you invest in a mutual fund, you must pay taxes on the earnings of the fund, even if you are reinvesting. However, with an annuity, you do not have to pay taxes on the interest, dividends, or capital gains earned until you either make a withdrawal or choose to receive income from your annuity.


Receive income for life

An annuity can provide you with an income which you can never outlive. At age 59½ or older, you can realize the benefits of your annuity without incurring a penalty. You could withdraw your annuity as a lump sum; or you could “annuitize” by withdrawing a predetermined amount every month for several years. This feature is especially attractive to retirees since it provides for a predictable monthly income stream. There are many ways to structure the payments. For instance, you can arrange to receive a fixed sum every month for 20 years, or until you die, or until you and your spouse die. If you die before starting to withdraw the money, most annuities provide that your beneficiary will receive at least as much as you contributed.


Variable Annuities have a variety of fees. The most common being mortality and expense, investment management and rider fees (i.e. death, living benefits). You will want to be sure you are familiar with them when purchasing the annuity. You should also be aware, if you cancel the annuity, there may be insurance company surrender charges that could apply. In addition, there may be a 10% tax penalty on the taxable portion of the annuity if you are under age 59½. It is always recommended you review with your tax advisor.