How to Get the Best Variable Annuities

With the resurgence of variable annuities as a retirement vehicle, comes a whole new generation of investors who are looking at them for the first time. There is a lot to consider when buying a variable annuity. They are complex instruments to begin with, and the intensively competitive marketplace creates more confusion when trying to determine how to get the best variable annuities.

There are a number competitive features found in variable annuities that can differentiate the best from the rest. This guide will help you streamline the process of comparing variable annuity features that can separate the best from the rest.

Subaccount Performance

The primary differentiator of a variable annuity is the investment performance of its subaccounts. Naturally, you want your money working with the winners. An investment in a variable annuity actually goes into subaccounts which are mutual fund-like, managed accounts that pool your money into stock and bond portfolios.

Variable annuities must be sold with a prospectus. The subaccount performance history is listed in the prospectus along with the investment manager’s investment objectives and philosophy. The best variable annuities tend to have subaccounts with longer track records of at least 10 years. Also, there should be an adequate mix of portfolios that range from aggressive growth to low risk, low return type investments.

The best variable annuities are the ones that consistently outperform the market, both in up markets as well as down markets.

Variable Annuity Costs

The many advantages of variable annuities do not come without a cost. The fees associated with variable annuities cover the costs for investment management, providing a death benefit along with administrative costs. There are also additional costs for adding riders that provide minimum withdrawal and minimum death benefit guarantees.

As with anything, the lowest costs don’t necessarily translate to the best variable annuity. Costs can be easily compared by going on line to an annuity comparison site where you can sort by a number of different features. Detailed breakdowns of fee structures are available.

With a variable annuity you do tend to get what you pay for. Most no-load or low-load variable annuities are fairly stripped down models that don’t offer the level of guarantees or options for additional guarantees that are available in loaded annuities.

The best variable annuities are those that have a reasonable fee structure, and also provide a high level of services that can assist you in making investment and income decisions as your financial situation evolves. The extra 1% or 2% you might pay in fees will be offset by your tax deferral and the services can be priceless should you need the extra help in making future decisions.

Surrender Fees

As part of your contract with the annuity provider, you are committing your investment for a long term. In order to dissuade you from taking early withdrawals the provider will charge a surrender fee. This usually occurs during the first five to ten years of the contract, after which, there will be no more charges. Providers compete for your business by structuring very liberal surrender schedules and fees. Some offer short surrender windows of three to five years, and others charge lower fees. These can be compared at the same annuity comparison websites. If you invest in a variable annuity with no intention of withdrawing funds within the first five to ten years of the contract, then this may not be a feature that you would use for comparison. The best variable annuities are the ones that meet your liquidity needs.

Death Benefit Guarantees

One of the unique advantages of variable annuities is the protection of your principal against market risk. Essentially, you can invest in a variable annuity with the peace-of-mind knowing that your beneficiaries will not receive anything less than your original investment. The death benefit provision are fairly standard among providers, however, some offer additional guarantees. For instance, some variable annuities include a valuation step-up which ratchets up your base account value as it grows. So, instead of receiving the original principal, your beneficiary could receive your accumulated value. Many variable annuities offer this feature as a rider at an additional cost. You would need to weight the added security against the fee to determine if it is a good value for you.

Minimum Income Guarantee

All variable annuities come with a minimum income guarantee that protects your income against adverse market fluctuations. The minimum payout rate is also a competitive feature and should be compared. Some providers also offer additional income guarantees that can increase the minimum payment, again, at a cost.

The best variable annuities offer the most competitive income and death benefit guarantees along with the options to enhance the guarantees. Don’t let the additional costs of minimum income guarantees deter you as they can payoff in the long run when your income needs to keep up with inflation.

Get the Best from the Best

Guarantees such as return of principal and minimum income withdrawals are generally backed by the financial strength of the life insurance company providing the annuity product. As these are long term guarantees, it would be important to narrow your choices to those insurers that rate the highest for their claims paying ability. There are plenty of A+ rated companies from which to choose a great variable annuity. The best variable annuity is the one that will be able to pay you regardless of the state of the economy at the time.

To get the best variable annuity you’ll need to do your research which is made easy by any number of online annuity websites. By comparing investment performance, fee structure, level of service, death benefits, and income guarantees you’ll be in the best position to find the best variable annuity for you.