Variable Annuities of a Different Sort

Older investors may have a new annuity to examine in 2010. It may be simply a better-for-the-insurer version of the old variable annuity mouse trap. Younger investors also need to take note of this variable annuity product as well.

Annuities come in all sorts of flavors. Single premium annuities are an all-in type that is purchased in a lump sum. Flexible annuities spread the payments over a period of time. Sometimes these are deferred until a later date whereby the investor can withdraw money all at once or in scheduled payments. Investments grow in a tax-deferred environment. Fixed annuities offer the investor the lowest risk (in part because the insurance company invests in bond funds) which insures your principal is never lost. Immediate annuities are also lump sum investments that begin distributions immediately.

But there is a new variable annuity product coming to market that will attempt to lure a wide range of investors into its trap. Everyone should take notice of what this investment/insurance product offers in large part because the sales pitch is designed to play off your fear of losing what you already have gained.. Question is whether you understand what this trap means to your retirement and whether it is worth paying the high cost.

Paul Petillo is the Managing Editor of Target2025.com