Variable Rate Annuity Risks: Understanding the Downsides

If you are looking at purchasing a variable rate annuity, there are a few things that you will need to consider. This type of annuity is definitely not for everyone. Here are a few of the potential downsides of a variable rate annuity.

Investment Risk

Perhaps the biggest potential downside of this type of annuity is the investment risk. With a variable annuity, you are going to be in charge of selecting investments to put your money in. This puts the risk of investment squarely on you. If your investments do not perform well, you have no one to blame but yourself. This makes the variable rate annuity a very active form of investment.

Company Risk

Another potential drawback of a variable rate annuity is that you are working with an insurance company. If you were to choose the wrong insurance company to start your annuity contract with, it could potentially cost you your retirement savings. Insurance companies could potentially go out of business and leave you with nothing left for your retirement.

Costs

Investing in a variable rate annuity can also be costly. Variable rate annuities might charge you a percentage of your premiums or a percentage of the earnings from your investments.