Alternative Investment Strategies in Lafayette, CA

Variable Annuities Insurance

What Are Variable Annuities & How to Use Them

A variable annuity is an insurance product that provides you with an income source, either now or in the future. The value of a variable annuity is tied to its portfolio performance. You can purchase a variable annuity with a lump sum payment or a series of payments. The annuity can then be paid out to you monthly for a specific period of time. Variable annuities are often used to create a reliable income stream in retirement.

The Principle & Your Return on Investment

Your annuity includes two parts: your initial investment or principle and the interest it earns. How much your principal earns varies, because it depends on the performance of the underlying sub accounts for that annuity. The most popular variable annuities are deferred annuities. This means you may either purchase the annuity with a lump sum or a series of payments and expect an income stream starting on a future date.

The Accumulation Phase & The Payout Phase

Deferred annuities have an accumulation phase and a payout phase. During the accumulation phase, you may make a series of payments toward the annuity. If you purchase an annuity with a lump sum payment, the accumulation phase still allows your principal to grow based on the portfolio performance. During the accumulation phase, you typically don’t make withdrawals. You can also purchase an immediate annuity, which will provide an income right away and skip the accumulation phase.

If your deferred annuity is part of your retirement plan, you can’t receive any money until your 59 ½ without paying a surrender fee, penalties, and taxes. During the payout phase, your annuity will provide a regular income for you. With a variable annuity, the amount of the income is not guaranteed, because the annuity’s payout relies on its performance.

Advantages & Disadvantages of Variable Annuities

Variable annuities have advantages and disadvantages. The advantages include tax-deferred growth and an income stream during your retirement. Some variable annuities pay a guaranteed death benefit. And much like the amount in your retirement account, the funds from your annuity are off-limits to creditors.

The disadvantage of variable annuities is that they carry more risk than a fixed annuity does. You assume the market risk with your annuity. On the flip side, this can lead to a higher payout, too. You must also know that variable annuities have surrender and early withdrawal fees, which is why you need to use this insurance product as a long-term investment.

FAQs about Variable Annuities

Are Fixed or Variable Annuities Better?

It depends on the terms of the annuity, the fees, and the potential payouts. While fixed annuities offer a guaranteed income, variable annuities may provide a better payout. Our financial advisors can help you find the annuity that’s right for you after considering the fees and pros and cons of the different options, such as fixed, variable, immediate, and deferred annuities.

How Does an Annuity Work?

An annuity is an insurance product. You invest money into an annuity for a future payout. Depending on the type of annuity, the payout may be fixed or variable. You determine when and for how long you will receive payments and purchase the annuity that works for you. At Avella Private Wealth, our clients often use annuities to supplement their retirement income.

How Can Variable Annuities Benefit Me?

A variable annuity allows you to invest your money, knowing it will provide an income stream for you in the future. It’s a good investment option for your retirement, because it’s not accessible to creditors and provides you with some tax benefits. Variable annuities may also offer a potentially higher payout than fixed annuities.

Talk to Our Advisors about Variable Annuities

If you’re interested in learning more about variable annuities and how they fit into your plan of building long-term wealth, reach out to our team of financial advisors. At Avella Private Wealth, we help you make the best investment decisions for your situation. If you want to create a stream of income for your retirement years, an annuity might be a good fit. Call us today to talk about your options for purchasing a variable annuity.

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