Freedom of Choice
As the owner of a variable annuity, your freedom to choose from among different portfolios can help you to better balance your investment objectives, personal circumstances and risk tolerance.
In addition, you'll be able to switch your assets from one portfolio to another at any time without tax consequences. And that can be extremely helpful whenever your investment objectives or personal circumstances change.
Finally, variable annuities guarantee your principal in the event you die before you annuitize the contract—a feature known as the guaranteed death benefit.
Some annuity contracts may also allow you to choose an “enhanced” death benefit that can increase the value of the death benefit (usually for an additional fee). All guarantees are based on the claims paying ability of the issuing insurance company.
Unlimited Contributions
Although Social Security and company-sponsored pension payments may be sufficient to cover your basic retirement living expenses, they probably won't be enough to allow you to realize all of your retirement dreams.
Other popular retirement plans, such as IRAs and 401(k)s, limit the amount of money you can contribute each year to your retirement plan. But, as long as the funds you're investing are non-qualified (post-tax), your variable annuity will permit unlimited contributions.
You can also continue to invest in your account even if you have no earned income or are not working—options that may not be available with other types of long-term savings plans. So, even if you've started your retirement fund comparatively late in life, a variable annuity may help you make up for lost time.
Inflation Protection
Variable annuities also offer possible protection against the effects of inflation. Although past performance is no guarantee of future results, returns from stock market investments have historically outpaced inflation over the long term, which can help maintain the purchasing power of your assets.
Especially for younger retirement savers, the important question isn't “What can my dollars buy today?” but “What will those same dollars be able to buy in 20 or 30 years?” Depending on your personal needs and circumstances, as well as on a number of outside factors, what seems to be a substantial financial cushion today may prove less than adequate tomorrow. When estimating how much you'll need to achieve your retirement goals, be sure to consider the likely impact of inflation on your projected nest egg.