I just read a very real review of variable annuities with living benefits from the AARP. In Jane Bryant Quinn’s article “Buying Your Own Pension,” she says that while these variable annuities can be costly, they can also be worth the wealth of benefits which they provide. While the dream investment would provide guaranteed income along with large stock market gains and no potential for losses, that perfect investment does not exist. In order to make your own pension and get a retirement income that will last and protect your future, you have to balance your risks and rewards with a product that is best for your individual needs.
Variable annuities with living benefits usually have two different accounts. The first is the actual investment which you purchase with a lump sum payment. Your money gets invested into mutual funds, the values of which change with the markets. After you pay your costs, the money in your investment account at maturity is either paid in a lump sum or in periodic payments. The second account is the guaranteed income aspect. Even in the worst case scenario, you actually have losses with your investment, you will still gain the guaranteed income of 5%, or whatever your annuity offers. While you can’t take this money as a lump sum payment, you will be issued periodic payments for the rest of your lifetime. Your heirs will get any remaining money, with the exception of any taxes still due.
This AARP Bulletin is a very basic description of variable annuities with living benefits, but has a lot of helpful information for retirees looking to create their own pension. Two things the author suggests you look for are annuities with fees of 3% or below and those which allow you to invest at least 80% of your money with stocks, because they give you the best chance for higher returns. If you would prefer something with lower costs than a variable annuity with living benefits, deferred income annuities with payment guarantees are a good option. Regardless though, the author summarizes that while variable annuities with living benefits are certainly not cheap, they can be reasonable investments because of the benefits which they provide you.
Written by Rachel Summit
Follow Finance Mama on Twitter http://twitter.com/#!/financemama