Variable Annuities Pros And Cons: Understanding The Good And The Bad Will Help You Make An Informed Decision

Variable annuities come with several pros and cons that might serve as deal breakers for some, and for others it might just push them over the edge to get involved with them.Variable annuities are good investments, especially seeing as how they are tied to the investment performance of the mutual funds within a given policy. You need to know the pros and cons however before you decide to make use of this type of investment.

The pros of variable annuities

A wide range of choices to select from

With other forms of investments you might be limited in options, this will hurt you because there might be investments you are knowledgeable about, but cannot get involved with. With variable annuities you will have a multitude of different mutual funds you can pick from. This means you can change up where your money is going whenever you feel like it, and with little cost.

Tax deferred earnings

With other forms of investments you are taxed on earnings, and this reduces the ROI (return on investment) greatly. When you invest with variable annuities the earnings on your money will be deferred until you decide to withdraw them. This can be a double edge sword though, because depending on circumstances you might need the money sooner than retirement.

The cons

Not being able to get your lump sum back

The problem with variable annuities is that you can put so much money into them, but the amounts you get back in return can potentially be small. This is a problem only because should you ever decide you want the lump sum back, you will not be able to get it.

Another issue is that you cannot transfer your income to someone else. In this case, depending on how much you put into a variable annuity you may not live long enough to get your initial investment back.

Having your money locked up until a certain age

Should you ever decide that you need money now, you will not be happy when you find out the money is locked up until you hit a certain age. You usually have to be around sixty years old before you can even touch this money. If you withdraw it before then you will have to pay penalties in the area of ten percent. These penalties can add up quickly and severely diminish your returns.

Think carefully about getting into variable annuities and the pros and cons involved. All in all they are good investments, but they might not be suitable for everyone.