Where Should You Invest Money

Enter the characters you see below Sorry, we just need to make sure you’re not a robot. Enter the characters you see below Sorry, we just need to make sure you’re not where Should You Invest Money robot. You don’t have permission to view this page. Please include your IP address in your email. Variable annuities have become a part of the retirement and investment plans of many Americans.

Before buying any variable annuity, however, you should find out about the particular annuity you are considering. Request a prospectus from the insurance company or from your financial professional, and read it carefully. A variable annuity is a contract between you and an insurance company, under which the insurer agrees to make periodic payments to you, beginning either immediately or at some future date. You purchase a variable annuity contract by making either a single purchase payment or a series of purchase payments. A variable annuity offers a range of investment options. The value of your investment as a variable annuity owner will vary depending on the performance of the investment options you choose. The investment options for a variable annuity are typically mutual funds that invest in stocks, bonds, money market instruments, or some combination of the three. This feature offers protection against the possibility that, after you retire, you will outlive your assets.

Second, variable annuities have a death benefit. Your beneficiary will get a benefit from this feature if, at the time of your death, your account value is less than the guaranteed amount. That means you pay no taxes on the income and investment gains from your annuity until you withdraw your money. You may also transfer your money from one investment option to another within a variable annuity without paying tax at the time of the transfer. When you take your money out of a variable annuity, however, you will be taxed on the earnings at ordinary income tax rates rather than lower capital gains rates. Under these circumstances, consider buying a variable annuity only if it makes sense because of the annuity’s other features, such as lifetime income payments and death benefit protection.

Remember:  Variable annuities are designed to be long-term investments, to meet retirement and other long-range goals. Variable annuities are not suitable for meeting short-term goals because substantial taxes and insurance company charges may apply if you withdraw your money early. Variable annuities also involve investment risks, just as mutual funds do. How Variable Annuities Work  A variable annuity has two phases: an accumulation phase and a payout phase. During the accumulation phase, you make purchase payments, which you can allocate to a number of investment options. The money you have allocated to each mutual fund investment option will increase or decrease over time, depending on the fund’s performance. Your most important source of information about a variable annuity’s investment options is the prospectus. Request the prospectuses for the mutual fund investment options. Read them carefully before you allocate your purchase payments among the investment options offered.

During the accumulation phase, you can typically transfer your money from one investment option to another without paying tax on your investment income and gains, although you may be charged by the insurance company for transfers. However, if you withdraw money from your account during the early years of the accumulation phase, you may have to pay “surrender charges,” which are discussed below. If you choose to receive a stream of payments, you may have a number of choices of how long the payments will last. The amount of each periodic payment will depend, in part, on the time period that you select for receiving payments. Be aware that some annuities do not allow you to withdraw money from your account once you have started receiving regular annuity payments.

Where Should You Invest Money

Where Should You Invest Money Expert Advice

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Where Should You Invest Money

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In addition, some annuity contracts are structured as immediate annuities, which means that there is no accumulation phase and you will start receiving annuity payments right after you purchase the annuity. The Death Benefit and Other Features  A common feature of variable annuities is the death benefit. Example: You own a variable annuity that offers a death benefit equal to the greater of account value or total purchase payments minus withdrawals. Some variable annuities allow you to choose a  “stepped-up” death benefit. Under this feature, your guaranteed minimum death benefit may be based on a greater amount than purchase payments minus withdrawals.

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For example, the guaranteed minimum might be your account value as of a specified date, which may be greater than purchase payments minus withdrawals if the underlying investment options have performed well. Variable annuities sometimes offer other optional features, which also have extra charges. You may want to consider the financial strength of the insurance company that sponsors any variable annuity you are considering buying. This can affect the company’s ability to pay any benefits that are greater than the value of your account in mutual fund investment options, such as a death benefit, guaranteed minimum income benefit, long-term care benefit, or amounts you have allocated to a fixed account investment option. You will pay for each benefit provided by your variable annuity. Be sure you understand the charges. Carefully consider whether you need the benefit.

Variable Annuity Charges  You will pay several charges when you invest in a variable annuity. Be sure you understand all the charges before you invest. These charges will reduce the value of your account and the return on your investment. This charge is used to pay your financial professional a commission for selling the variable annuity to you.

This charge is equal to a certain percentage of your account value, typically in the range of 1. This charge compensates the insurance company for insurance risks it assumes under the annuity contract. Example: Your variable annuity has a mortality and expense risk charge at an annual rate of 1. 250 in mortality and expense risk charges that year. The insurer may deduct charges to cover record-keeping and other administrative expenses. Example: Your variable annuity charges administrative fees at an annual rate of 0. You will also indirectly pay the fees and expenses imposed by the mutual funds that are the underlying investment options for your variable annuity.

Special features offered by some variable annuities, such as a stepped-up death benefit, a guaranteed minimum income benefit, or long-term care insurance, often carry additional fees and charges. Other charges, such as initial sales loads, or fees for transferring part of your account from one investment option to another, may also apply. You should ask your financial professional to explain to you all charges that may apply. You can also find a description of the charges in the prospectus for any variable annuity that you are considering. Exchanges  Section 1035 of the U. You may, however, be required to pay surrender charges on the old annuity if you are still in the surrender charge period. In addition, a new surrender charge period generally begins when you exchange into the new annuity.

If you are thinking about a 1035 exchange, you should compare both annuities carefully. Bonus Credits  Some insurance companies are now offering variable annuity contracts with “bonus credit” features. Surrender charges may be higher for a variable annuity that pays you a bonus credit than for a similar contract with no bonus credit. Your purchase payments may be subject to surrender charges for a longer period than they would be under a similar contract with no bonus credit. Higher annual mortality and expense risk charges may be deducted for a variable annuity that pays you a bonus credit. Although the difference may seem small, over time it can add up. In addition, some contracts may impose a separate fee specifically to pay for the bonus credit.

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