Bob Wamhoff, President of Wamhoff Financial Planning & Accounting dropped by the Mid Day show to discuss variable Annuities. Mr. Wamoff talked about variable annuities offered by insurance companies as part of their retirement portfolios. While annuities can be invested in funds tied to the stock market, they also allow for protection against stock market losses by guaranteeing protection of the principle for future income. There are many things to consider when thinking about a Variable Annuity
An insurance product which is a contract between the investor and an insurance company that provides lifetime income in exchange for a lump sum investment.
The insurance company then makes periodic payments back to the investor, beginning either immediately or at a future, specified date.
What are the advantages of a Variable Annuity?
Allows the investor to benefit from stock market gains while shielding against losses. It guarantees that the investor will not lose his or her principle for future income.
Offers flexible investment choices in mutual funds, bond funds, money market funds, or a combination.
Offers a variety of riders designed to help protect assets, and to meet many individual needs, including long term care, joint life, and living benefit riders to guarantee a certain rate of return.
IRS tax code 1035 exchange allows an investor to transfer an existing variable annuity which is out of surrender period to a new variable annuity without paying taxes on the investment gain.
Are there any negatives to consider with a Variable Annuity?
Variable Annuities are subject to surrender periods, and therefore assets are not liquid until these periods are reached.
The costs associated with the various riders can be very expensive. If an investor does need to access the money, surrender charges will be imposed. These charges are typically a percentage of the amount withdrawn.
Mortality and expense fees apply to Variable Annuities, which compensate the insurance company for the insurance risk associated with the annuity contract. This is typically a percentage of the account value.
The financial health of the insurance company.