Variable Annuities: Common Pitfalls & How to Avoid Losses

Variable annuities are a popular investment vehicle for people planning for retirement. Although they are beneficial in some cases, other times investors will lose money. Here are a few reasons that investors lose money on variable annuities.

1. Investment Performance

With a variable annuity, you are in charge of making your own investment decisions. You will be allocating the money in your annuity towards a number of different investment vehicles. If those investments do not perform well, you will lose money in the variable annuity. This will provide you with less of a monthly payment once you start the payout phase.

2. Fees

You will lose some of your money to fees. Some annuity companies will take a certain percentage out of your premium payments or out of the returns on your investments. Regardless of the fee structure, some of your money will inevitably go to the annuity company.

3. Surrender

Another way that you could lose money on a variable annuity is if you surrender it early. With annuities, you will have to pay a 10 percent penalty if you end the contract before you reach retirement age. This can take a big chunk out of your retirement savings.