Financial & Estate Planning

Variable annuities allow you to put your money into a variety of investment accounts, including stock funds, while deferring the tax until you withdraw the money. Unfortunately, those investments can go down as well as up.

To allay investors’ fears, the insurance companies offering variable annuities offer several forms of “living benefits.” These benefits are money-back guarantees or guaranteed returns. Most variable annuities now offer one or more of these living benefits:


* Guaranteed minimum income benefit (GMIB). When the contract is converted to a stream of income payments (“annuitized”), the payments will be based on the actual contract value or a specified minimum amount, whichever is greater.

* Guaranteed minimum accumulation benefit (GMAB). With this arrangement, you are guaranteed that your contract will have a minimum value after a specified number of years, regardless of actual investment performance.

* Guaranteed minimum withdrawal benefit (GMWB). These features allow you to pull out cash from your variable annuity each year, up to a specific percentage of the premiums you’ve paid. These withdrawals may continue over a specified time period until the amount of your investment has been withdrawn, regardless of market performance.

You will have to pay for these guarantees but they may be worthwhile if they give you the confidence to invest in stock funds, where the long-term returns could be substantial.

The key is whether an insurer will be able to live up to its promises many years from now. Therefore, you should investigate an insurance company’s financial strength before purchasing a variable annuity.