If youâ€™re a member of Generation X, itâ€™s time to save for retirement. And donâ€™t think you can count on Social Security or pensions. The future of those retirement savings products is uncertain.
So where do you start? Investing in variable annuities may be a good option. According to John. M. Gannon, author of â€œVariable Annuities: Beyond the Hard Sell,â€ variable annuities can be appropriate as a retirement investment under the right circumstances. However, there are restrictive features. If youâ€™re unsure of what a variable annuity is, you might want to do a little research. Hereâ€™s Gannonâ€™s introduction to this product:
What is a Variable Annuity?
Although variable annuities offer investment features similar in many respects to mutual funds, a typical variable annuity offers three basic features not commonly found in mutual funds:
- Tax-deferred treatment of earnings
- Â A death benefit
- Â Annuity payout options that can provide guaranteed income for life
Generally, variable annuities have two phases: (1) the â€œaccumulationâ€ phase when investor contributions – or premiums – are allocated among investment portfolios – or subaccounts â€” and earnings accumulate; and (2) the â€œdistributionâ€ phase when you withdraw money, typically as a lump sum or through various annuity payment options.
If the payments are delayed to the future, you have a deferred annuity. If the payments start immediately, you have an immediate annuity.
As its name implies, a variable annuityâ€™s rate of return is not stable, but varies with the stock, bond, and money market subaccounts you choose as investment options. There is no guarantee that you will earn any return on your investment and there is a risk that you will lose money. Because of this risk, variable annuities are securities registered with the Securities and Exchange Commission (SEC). The SEC and NASD, the primary private-sector regulator of Americaâ€™s securities industry, also regulate sales of variable insurance products.