There are risks involved in purchasing annuities as well as the potential for accumulating retirement savings that
may produce a stream of lifetime income. Here are some of the
more significant ones.
Risks with variable annuities
While a deferred variable annuity provides a guaranteed
death benefit, it does not guarantee investment return.
Return depends on the performance of the investment funds you
choose. That means you may not accumulate the savings you anticipate
when you purchase a contract, and that you could lose some of
your principal.
The guaranteed death benefit applies only if you die while the
contract is in force, not if you wish to withdraw or annuitize.
If you select a variable immediate annuity, you
risk receiving less income in periods when the performance of
your investment funds falls below the anticipated return.
Risks with fixed annuities
Because the insurance company that issues your
contract guarantees the growth of your account value, and your
income if you annuitize, you’re dependent on that company’s
ability to meet its obligations.
Further, the premiums you pay for fixed annuities
go into the issuer’s general account and can be vulnerable
to the company’s creditors.
A Different Risk
There’s always the risk that an unscrupulous salesperson
could take advantage of your desire for retirement security,
and sell you an annuity that’s inappropriate for your
needs. It’s a good idea to consult with an impartial
financial adviser before signing any annuity contract.
