Variable Annuities: Benefits, Risks & Retirement Planning

An annuity variable is a good idea for retirement planning. A variable annuity offers the owner a way to increase the value of their asset by investing in the market while guaranteeing a payment stream. Variable annuities have more associated risk than a comparable fixed annuity but provide great benefits for a retiree.

Changes in the Stock Market

Changes in the stock market have many individual investors leery about participating in the market. Although this is understandable, the stock market crash of October 1989 had far more losses. The market losses in October were nearly 23 percent of the overall market. Interestingly, if a person had gutted it out until the end of the year, they would have rebounded from the single day losses.

A variable annuity is not an investment. It is a vehicle used to guarantee future income by allowing an annuity owner to receive tax-deferred growth or accumulation. This can be accomplished both inside and outside a tax-qualified account such as an Individual Retirement Account.

Variable Annuity and IRA

Placing a variable annuity into an IRA can make sense because of the tax-deferral component and the guaranteed income in retirement. For most individuals who are looking for additional savings opportunities beyond their 401(k)s and other retirement plans, a variable annuity provides a good secondary source for saving for retirement. A variable annuity on its own (outside an IRA) is even better because it is not subject to the annual contribution limits that IRAs are subject.

Variable Annuity as a Security Product

A variable annuity is considered a security in accordance with the provisions of the Securities Act of 1933 and Investment Company Act of 1940. A licensed life and annuity life insurance agent who is also registered with the Financial Industry Regulatory Association (FINRA) can only sell the products. It is FINRA that establishes rules, along with the respective state where the variable annuity is sold, regarding suitability and sales standards.

Variable Annuity Role in Retirement Planning

You should consider a variable annuity as another tool in meeting your retirement goals. The stock market over long periods of time has better returns than fixed income investments and products such as bonds, certificates of deposit and fixed annuities. The risk that you take is offset by the higher potential return and values. Being that a variable annuity is a long-term planning tool, over time the variable annuity should do well in helping you achieve your retirement goals.