Variable Annuities

Variable annuities are often times considered the most complicated class of annuities with their many moving parts tied to indexes. A variable annuity is quite a bit different than a fixed or indexed annuity since it is the only annuity that can present a possibility to lose the principal amount you may have funded initially. How Variable Annuities Work: Annuities have two phases: 1) the investment/accumulation phase and 2) the payout phase.

During the investment/accumulation phase, clients place taxable or after-tax assets in an annuity, invest in the investments offered by the annuity company and sit back and wait.

Like any investment, the investor hopes to see his/her investments appreciate. At a certain point, the annuitant (annuity owner) flips a switch and converts this account into a stream of income.

When this happens, the size of the monthly annuity payment stream is based upon actuarial tables. If you live past your predicted life span, you continue to collect payments and you “won” in terms of getting more out of your annuity.

If you live a shorter life than the actuarial tables predict, you’ve lost in two ways: your life ended prematurely and so did your payment stream

That being said it also offers a significant upside in gains which is quite similar to an indexed annuity it also offers additional tax-deferred retirement savings over an extended period.

You fund your account by making one or more deposits. Unlike a fixed annuity, a variable annuity may purchase stocks and mutual funds with your deposits. This increases the possible yield for the annuity, but it also increases your risk.


We are not here to sell you different types of investments for your retirement, we are simply here trying to provide you with a clearer understanding of the many types of investment and retirement opportunities available to you including annuities and other investment vehicles.

Too often the retirement planning conversation focuses on accumulation - growing your pool of savings to have a larger pool to “draw down” in retirement. Finding the right investment choices nowadays is easy when you have the right professionals to help you understand the many choices available to you and what they can do to help at this point in your investment or retirement strategy.

Ask us to calculate your expected monthly income based on your current investments and other sources of income, like Social Security,401K, I.R.A.s and let us help you identify if there is a gap. Then you should discuss how much of that income can or should be protected or shielded from potential changes due to market downturns.

If your income from current retirement savings and investments, when combined with Social Security, is not enough to meet your monthly retirement income needs and you are concerned about outliving your retirement savings an annuity is probably the right choice. 

An annuity, which can provide protected monthly income to supplement your savings and investments and Social Security will be helpful if you outlive some of that retirement income by guaranteeing a lifetime stream of income available with some types of annuities.

Ask us if you feel a portion of your retirement plan should be invested in an annuity to give you the peace of mind that you’ll have with a protected income for the rest of your life. There are a range of different types of annuities, all of which can offer protected lifetime income.

Depending on the type of annuity you choose and the benefits offered, there may or may not be direct costs. With certain annuities, riders or expanded optional income protection is available for an additional cost.  What if I need access to my money in an annuity? With all investments, it is important to consider when you will need to access your money. Some annuities carry withdrawal or surrender charges that may limit when you can access your money without incurring a charge. Be sure to ask how this works. Be sure to ask what, if any, costs are associated with withdrawing money early; for example, in the case of unexpected expenses such as health care or long-term care needs. If you want protected income to be received right away, make sure you understand all your options. Can annuities help protect me from investment losses? Annuities can provide you with monthly income that’s protected from market volatility. Some annuities can also protect your principal from losses. Be sure to ask about and discuss the variety of annuity options with your financial advisor How do I know that my protected income is safe? All insurance companies have a rating for financial strength provided by rating agencies like A.M. Best, Standard & Poor’s, Moody’s, and Fitch. Ask your financial advisor about the financial ratings of the insurance company you are considering. Are there other strategies for protected monthly income? Ask your advisor if there are other investment strategies that provide protected lifetime income that can help mitigate the impact of rising costs of living and health care, market volatility, interest rate fluctuations, and longer lifespans. There are important tax consequences if purchasing an annuity in an IRA (qualified annuities) or purchasing it with after-tax money (non-qualified annuities). It’s reckless to invest in an annuity without considering the tax consequences.

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