Variable annuities have been ridiculed in the past by many in the financial industry, according to Leslie Scism of the Wall Street Journal. Scism’s article “Long Derided, This Investment Now Looks Wise”, says that variable annuities have proven to be an optimum investment during the recent stock market decline. Variable annuities are a contract between an investor and an insurance company where an initial investment is paid out over time starting at some point in the future. It is variable because the money is subject to stock market fluctuations. Where they differ from typical stock market investments though is in the guarantee of money. The additional fee for this guarantee was considered expensive by naysayers in the past, but has proven to be well worth the added fee in the long run. Scism points out that while the S & P 500 fell almost 39% last year, the most generous variable annuities actually saw gains of around 6%.
Those great deals are hard to come by anymore as some insurance companies scrape to pay out their guarantees, but variable annuity guarantees are still much better than their alternative investments without the guarantee. Investors need to be prepared for the fact that they cannot cash out a lump sum of their money with these investments. Annuities are meant to be taken in payouts over time to cover your living expenses. It is also crucial to invest with an insurance company that is solid and will be around to pay those monthly installments.
Variable annuities got a bad name 25 years ago when commissions for selling them were so high that it was questioned whether the suitability for investors was looked into well enough and if the fees were too high for the investment. Researchers have found recently though that some insurance companies are actually charging less than they could and with all the benefits, those negative aspects from decades ago have changed. Although products may currently have less to offer, they are still offering great guarantees. AXA Equitable offers a 5% increase to the income base annually, as does Ohio National Life Insurance Company. Compare annuities with an expert and see what a variable annuity can do for you as you approach retirement.
