Variable annuities (VAs) offer appealing benefits. You can invest in stock funds run by top managers and avoid income tax until withdrawal. In many cases, the potential gains can be supplemented with guarantees against losses.
You need to be careful about fees, though. Hartford Life Insurance Co. gives a hypothetical example of an investor who puts $100,000 in a VA and chooses investments that return 8 percent. Over 20 years, paying a 1 percent charge for the VA will reduce the investment value by more than $79,000.
Hartford Life points out that the average VA has total costs averaging 2.36 percent a year. Therefore, the impact of fees can be enormous. If you are interested in a VA, choosing one with fees well below average will be a good start on maximizing your ultimate return.