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April 2017  Volume 10, Number 4        

Is a Variable Annuity With an Income Rider a Good Way to Save?

Those who have reached the contribution limit for their 401(k) plans and other tax-deferred investments often turn to a variable annuity with an income rider as a savings vehicle.

Basically, a variable annuity is an insurance policy that provides income during your retirement years and can potentially increase in value. You invest your money into various mutual fund accounts which are tax deferred. The variable annuity usually is subject to higher fees and expenses.

A variable annuity has several advantages:

  • Your contributions and earnings grow tax-deferred until you withdraw funds.
  • You can easily change your investments at little or no charge.
  • The insurance company guarantees you an income for the rest of your life.
  • Annuities are a shelter from creditors in some states – which can be an advantage if you are in a profession that is hazardous or highly subject to litigation (for example, physicians).

There are disadvantages, too, that you must consider:

  • Once you decide on a variable annuity, you are locked into the contract.
  • Money from the annuity can only be used as income and you cannot take funds out as a lump sum.
  • If you die before you break even on the contract, the money remains with the insurance company unless you purchased an additional rider stating that the money also can be used as a death benefit.
  • You cannot withdraw any of the funds until you are at least 59 and a half years old or pay a penalty to the government. Plus you’ll pay higher taxes and a surrender charge to the insurance company.
  • To get the full value from most variable annuities, you must live 30 years or more.
  • If your insurer becomes insolvent and unable to pay, most states will only cover up to $250,000 in annuity benefits. Check to be sure the insurance carrier’s ratings are good before you buy.
  • There are various fees to consider, such as sales commissions, annual fees and administrative charges.

For help understanding whether an annuity is right for you, please contact us.


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In this issue:

This Just In...

What Replacing the Affordable Care Act Means — Pros and Cons

Don’t Be Unprepared for an Accident Waiting to Happen

Does Cancer Insurance Make Sense for You and Your Family?

Is a Variable Annuity With an Income Rider a Good Way to Save?


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