5 Reasons to why: You should RUN from Variable Annuities

Variable annuities can be complex financial products, and they may not be suitable for everyone. It's important to be cautious until you fully know the pro's and cons.  Variable annuities are a bit like that fancy lipstick on a pig analogy. Annuities, in general, often promise a floor of zero, meaning your investment won't go below a certain level. It's like a safety net. However, variable annuities introduce a twist by tying your returns to the market.

So, while you're hoping for gains, you're also exposed to market risks. It's like saying, "Hey, let's protect your money, but also, let's throw it into the unpredictable world of the stock market." It defeats the purpose of that safety floor because now you're at the mercy of market fluctuations.

1. High Fees and Expenses

• Variable annuities often come with a baggage of fees – mortality and expense fees, administrative fees, investment management fees, and surrender charges. These fees can take a substantial chunk out of your returns, potentially outweighing the benefits promised by the annuity.

2. Complexity

• Variable annuities can be complex and difficult to understand. The various features, riders, and investment options may be confusing for investors. The complexity can make it challenging to make informed decisions about the annuity and may lead to misunderstandings about how the product works.

3. Limited Investment Control

• With variable annuities, the returns are tied to the performance of underlying investments, typically mutual funds. While this offers the potential for market-linked returns, it also means that investors have limited control over the investment choices. If you prefer more control over your investment portfolio, a different investment vehicle might be more suitable

4. Surrender Charges and Penalties

• Variable annuities often have surrender charges, which are fees imposed if you decide to withdraw a significant portion of your money within a certain period, usually the first several years of the contract. These charges can be substantial and may discourage you from accessing your funds when you need them.

5. Tax Implications

• While annuities can offer tax-deferred growth, withdrawals from variable annuities are typically taxed as ordinary income. This can result in higher tax rates compared to long-term capital gains rates that might apply to other types of investments. If tax efficiency is a significant consideration for you, alternative investment options may be more attractive.

Before diving into the variable annuity pool, take a step back and assess your financial goals, risk tolerance, and investment preferences. Seeking advice from a knowledgeable financial advisor can shed light on whether a variable annuity aligns with your specific situation and goals. Remember, informed decisions today pave the way for a more secure financial future.

Get your Questions Answered