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  3. Making Variable Annuities Simple (I'm Trying!)

Making Variable Annuities Simple (I'm Trying!)

Submitted by MIRUS Financial Partners on August 11th, 2015

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Variable Annuities - The Basics

People often ask me about variable annuities. They’re a little bit different than other types of investments in a few important ways.

1. They are a product offered by insurance companies. Insurance companies invest your money and pay out fees based on the success of those investments.
2. You may be able to structure your annuity to pay out for the duration of your retirement, even in you live into your hundreds.
3. You can pay premiums (make deposits) in one lump sum, or in smaller amounts over time
4. Your earnings grow tax-deferred. You won’t pay taxes on this income until you begin to take withdrawals.
5. You may be able to include provisions for a guaranteed death benefit

Variable Annuities are Basically an Upside Down Life Insurance Policy

In traditional life insurance policies, you pay a little premium every month for a big payout after you pass away. With variable annuities you pay a lump sum up front, and then get series of smaller payments during retirement.

One of the most appealing features of variable annuities is their ability to provide regular payments throughout the life of your retirement. You’ll get regular payments that you can budget around, to supplement social security and other retirement income. However, not every variable annuity offers this feature for the entirety of your retirement. This is one of those areas that will require extra attention to make sure you’re getting the option that meets your needs.*

Some people pay for a variable annuity in one lump sum. This can be a good option for a variety of reasons. For example, you may want to move money currently in a taxable account, like a money market, into variable annuities to reduce taxes. Some fols cash out of 401Ks or retirement programs and move money into variable annuities to ensure a regular retirement income.

Smaller payments over time may be a better option for people looking to accumulate wealth or fund a retirement over the course of years. For example, if you begin contributing $200 a month at age 45, you will be able to contribute $48,000 by age 65. The ultimate value of your variable annuity will be dependent on associated fees and market performance over the life of your investment.

Taxes on Variable Annuity Withdrawals are Dependent on a Variety of Factors

Taxes on variable annuity withdrawals are dependent on a variety of factors, including whether you contribute with pre-tax or after-tax dollars. Withdrawals taken before age 59 1/2 are subject to penalties and taxes. A variety of other factors may also affect the taxation rate. Be sure you understand all tax implications before you purchase, and review these implications carefully before you do any withdrawals.

The Death Benefit is an Appealing Feature on Variable Annuities

The death benefit is an appealing feature of variable annuities. When an annuity is paid out as a death benefit, the beneficiary gets the entire contribution, minus any withdrawals. So if you contribute $48,000 and the market performs poorly, diminishing the payout value, your beneficiary will still get the entire $48,000. Some variable annuities offered enhanced death benefits for an additional fee. Make sure you understand the death benefit details associated with your variable annuity before purchasing.
Variable annuities have strengths and weaknesses. They may be a great option for your retirement, or they may not meet your needs. There are also a variety of variable annuity options, each with their own rules and regulations, so it’s a good idea to talk to a financial advisor before making any decisions on variable annuities.

Please note: Variable annuities are sold by prospectus. Variable annuities contain fees and charges including, but limited to, mortality and expense risk charges, sales and surrender (early withdrawal) charges, administrative fees and charges for optional benefits and riders. You should consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the variable annuity and the underlying investment choices, can be obtained from the insurance company issuing the variable annuity, or from your financial professional. You should read the prospectus carefully before you invest.

*All guarantees are subjects to the claims-paying ability and financial strength of the issuing company.

MIRUS Financial Partners
110 E. King St.
Lancaster, PA 17602
717-509-4521
mark@mirusfinancialpartners.com
http://www.mirusfinancialpartners.com

*****

Mark A. Vergenes is President of MIRUS Financial Partners, 110 E. King St., Lancaster. Investment Advisor Representative offering securities and advisory services offered through Cetera Advisor Networks LLC., member FINRA/SIPC. Cetera is not affiliated with any other named entity. MIRUS Financial Partners nor Cetera Advisor Networks LLC. give tax or legal advice.

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8 N. Queen St. Mezzanine
Lancaster, Pennsylvania
17603 United States

  •  Tel: 717-509-4521
  •  Mobile: 717-332-4395
  •  Fax: 717-509-4523
  •  mark@mirusfinancialpartners.com
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