A variable annuity can furnish investors with income, growth, diversification as well as living and death advantages. In fact, there are several different reasons why you should invest in variable annuities. It’s important to analyze though the features and riders attached in the contracts before you close the deal to ensure that your objectives and needs as the contract owner are carefully taken into consideration.
This article looks into the financial goals typically sought by active investors in various stages of life and how these annuities can be utilized to meet the investors’ needs.
Investors (20 to 30 Years of Age)
If you are an investor who is 20 to 30 years of age and generally makes use of annuities as your supplementary retirement vehicle, then you are on the right track. Understanding how do annuities work involves recognizing that high income earners who are capable of making the highest allowable contributions to their company sponsored retirement account frequently turn to annuities to acquire tax-deferred growth. On the other hand, investors who don’t offer retirement plan may be enticed to the benefits as well as money management features of the best variable annuities.
Because you are a young investor, you must apportion most or the entire contract values in what they call as “subaccounts” that invest your funds in stocks, for the reason that their time horizon is lengthy enough to permit them to regain losses incurred in the markets. Attaching insurance riders may be beneficial at this time, since their cost will lower the returns they procure within their contracts accordingly.
Investors (40 to 50 Years of Age)
Annuity rates for contract owners who are 40 to 50 years of age require different management than what is needed for younger investors. At this stage, the retirement account’s balances may be larger, while the prospect of retirement is nearing.
When performing variable annuity comparison at this phase, the rider for living and death benefit no doubt has a profound impact in how much account money they have to retire on. The owners of these contracts who actually pay for such riders have the means to invest their funds in more aggressive manner, since the income they acquire from their annuities is normally dependent on the maximum value that their contracts attain before they are annuitized. Such secures and protects them from unfavorable market conditions that can considerably lessen the value of the contracts prior to starting withdrawing money from the account.
Investors (Seniors and Retirees)
Investors who do not have full time work or are no longer working should generate income that they can rely on during their retirement. The living and death benefits discussed above are more valuable for seniors or older investors, particularly those who solely depend on their annuity withdrawals on a monthly basis. The advantages of many variable contracts will guarantee a payout that is dependent on the promised or guaranteed rate of growth throughout the life of the contract, like 5%, which is recompensed regardless of the performance of the subaccounts – except the contract outperformed the guaranteed rate, the money is dependent on the higher actual amount of the contract.
Annuity buyouts as investments can as well be used as estate planning instruments for seniors, specifically those who don’t like or are unable to sufficiently pay for complex planning tools and trusts. While these may still obtain estate taxes, the written death benefits from these annuities are passed directly to their named beneficiaries without probate, similar to qualified plans, IRAs, joint accounts, and transfer-on-death accounts, when the original account holder died.
The Bottom Line
Learning about the variable annuities pros and cons can grant you invaluable gains regardless of your age as the contract holder. In actuality, heirs who received huge inheritances can instantaneously invest the entire balance of the proceeds into the annuity and efficiently protect all future growth due to taxation until the money is distributed. Thus, a person who procures or inherits $500,000 can invest in a variable contract of such amount and permit the money to mature tax-deferred until the he or she becomes 70 ½ years of age.
Investors are not only protected by a variable annuity against taxes. Annuity loans are also available for those who need immediate access to their money. These investments can as well secure contract holders from several creditors in most instances.