Is A Variable Annuity Suitable For You In Your Retirement Years?

Sometimes, variable annuities are not suitable investments for retired individuals. Unfortunately, they are vigorously and sometimes misleadingly promoted to senior citizens by large insurance companies and financial advisers. The fat commissions earned by financial advisers are far too often the main incentive in selling these investment products.

Before considering a variable annuity, you should investigate and understand all the specific features along with the fees, expenses and tax issues involved. The following are a few points to consider. Variable annuities are strictly long-term investments. Many variable annuities have high annual fees and expenses. You will pay taxes on the earnings withdrawn at your regular income tax rate instead of at the capital gains tax rate. Most variable annuities impose hefty surrender charges if you withdraw more than ten-percent of the value per year before the surrender period ends. The surrender charge starts out high and decreases each year until it eventually reaches zero. You may not need the life insurance component in the variable annuity but you will still be charged for it. A variable annuity will provide no additional tax benefits over an IRA account. Tax treatment for beneficiaries of a variable annuity may not be as favorable as tax treatment for beneficiaries who receive stocks, bonds or mutual funds after your death. The bottom line when considering buying a variable annuity is to make sure you understand all the fees, expenses, tax issues and features of that specific annuity.

Mr. Bingham is an Arizona Licensed Attorney, former Attorney with the Securities Division of the Arizona Corporation Commission and a member of the Public Investors Arbitration Bar Association which is a national bar association committed to representing investors in disputes with the securities industry. He can be reached at (480) 832-1922.