Variable Annuity Guarantees
By annuitizing the contract, a variable annuity owner can receive a guaranteed income stream. Below, we look at the pro and cons of variable annuities:
This type can include market-like growth with optional downside protection by allowing the investor to choose investment vehicles, e.g. mutual funds. A variable annuity owner can receive a guaranteed income stream, with other guarantees available for purchase as riders.
Fees can diminish performance and mitigate the benefit of market participation.
Since variable annuities are affected by negative market volatility and can charge stiff penalties for early liquidation, investors may be locking themselves into a product that doesn’t perform the way they expect.
The actual value of the annuity and the rate of return are rarely guaranteed unless solely investing in fixed investments such as cash. This scenario guarantees zero return and possibility of even a loss of purchasing power once inflation is factored in.