Variable annuities allow you to invest in accounts that resemble mutual funds yet defer income tax. How can you choose among all the variable annuities available?
- Moderate expenses. Some annuities will have a low-cost structure because mortality and expense fees have been held down by the sponsoring company. Vanguard and TIAA-CREF are known for inexpensive annuities.
- A signing bonus. Some annuities offer a bonus to investors, who might start out with $104,000 or $105,000 in the contract for every $100,000 invested. Such bonus annuities are particularly appealing if you who want to switch out of an old annuity, by executing a tax-free exchange, but you face surrender charges. The upfront bonus can offset the surrender charge.
- Guaranteed death benefits. In prior years, the only guarantee you could get was a return of your investment, in case your investment accounts lost value.
Now, variable annuities may offer improved death benefits. You can get a death benefit that’s pegged to a peak anniversary death or one that’s guarantees an increase in your original principal each year.
In fact, some variable annuities now offer guaranteed living benefits. If you annuitize a contract (take a stream of lifetime cash flow) with the same issuer, the value of the contract will be treated as if it has gone up a certain amount each year, even if the contract’s value has fallen.
