Five Situations For Variable Annuities

According to the Insured Retirement Institute, sales of Variable Annuities grew by 3% from this time last year. VAs aren’t for everyone, however in the right circumstances, variable annuities offer solid benefits. There are at least 5 scenarios in which an advisor may consider recommending a variable annuity to clients.

Feel free to add your own to the list! You can contact me for more information on annuties at

1. Lowering Income Taxes
If you are in the maximum federal and state tax bracket, a VA may help to lower your taxes. Please review your situation with a tax specialist, but a VA can work similarly to an IRA in deferring taxes until money is withdrawn from the acccount.

2. Calming Jittery Investors
This is likely the biggest reason why VA sales are up. If you are nervous about the market but still need your money to grow over time, a VA can act as a “life preserver” for your long term savings.

3. Saving Above Contribution Maximums
If you have maxed out your IRA and 401(k) and still want to save more for retirement, you can put money into a VA. If you are a small business owner, you may also consider a SEP IRA (Simplified Employee Pension). The SEP allows you to save up to 25% of your income and deduct it from your taxes.

4. Guaranteed Income
Annuities have a primary purpose of providing guaranteed income. With people living longer and needing income in retirement, having an annuity can be like setting up a personal pension plan from your savings. Look for plans which offer Lifetime Income.

5. Death Benefit
If you haven’t taken income, many annuities will guarantee a death benefit of the amount you invested as a minimum. This is important, and this is where an annuity differs from ordinary mutual funds.

Here’s an example. Let’s take 2 investors, George and Jerry. Let’s say that both of them retire at 65 years old and have 401(k) balances of $100,000. They roll their 401(k) plans over to IRAs. George invests in mutual funds, while Jerry invests in a variable annuity with a guaranteed minimum death benefit. After 4 years, we have another huge loss in the stock market, and their accounts drop to $80,000. Neither of them have taken any income out of their IRAs yet, and are still under the age of 70 1/2 when they would need to take a Required Minimum Distribution.

If George dies, he leaves the balance of his account – $80,000 to his beneficiaries. If Jerry dies, he would leave $100,000, which is what he started with, even if the value of the account is less. Of course, if the account balance in either case is more than $100,000, the death benefit would be the same as the account balance.

Annuities can be beneficial in the right situations. Please contact me and let me know how I may help further.

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