The Pros and Cons of Variable Annuities

Variable annuities have become a popular product to use in retirement planning. This type of investment has several advantages and disadvantages that you will want to become aware of. Here are some of the pros and cons of variable annuities.

Pros

This type of investment can provide you with complete control over your individual investment decisions. With other types of annuities, you do not get to choose where your money goes. However, with the variable annuity, you will have control over these decisions.

By investing in a variable annuity, you will also be able to take advantage of tax-deferred growth. The money that you invest into your annuity is allowed to grow tax-free while it is in the annuity. You will not pay taxes on the money until you start taking annuity payments upon retirement.

Cons

One of the major disadvantages of this type of product is that commissions are high. Insurance companies will typically pay a very high commission to brokers that sell this type of product.

If you invest in variable annuities, you will also have to worry about default risk. You are essentially doing business with an insurance company. If the insurance company goes out of business, your retirement money will quite possibly go with them.

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