How Do Guarantees Work in Variable Annuities?
Variable annuities are investment products designed for retirement that combine both insurance and investment features. One key aspect of variable annuities is the guarantees they offer, which can help provide financial security for investors.
1. Types of Guarantees
Variable annuities come with various guarantees, including:
- Income Guarantees: This guarantee ensures a minimum level of income, regardless of investment performance, often referred to as Guaranteed Lifetime Withdrawal Benefits (GLWB).
- Death Benefit Guarantees: If the annuitant passes away, this guarantee ensures that beneficiaries receive at least the total amount invested or the current account value, whichever is higher.
- Investment Guarantees: These may provide assurances on the minimum value of the investment over a specific period.
2. Cost of Guarantees
While guarantees can provide peace of mind, they often come with additional costs, which may manifest as higher fees or charges attached to the annuity. It's essential to understand these costs and how they may impact your overall investment returns.
3. Evaluating Guarantees
Investors should assess their retirement needs and risk tolerance before selecting guarantees within a variable annuity. Understanding how these guarantees work and what conditions apply is crucial for making informed decisions.
In summary, guarantees in variable annuities can provide valuable protections but come with costs that must be managed carefully during retirement investing.