One of the harder
annuity
choices you make is whether
to choose a
fixed
or
variable
contract.
Many people like the psychological security of
earning a fixed rate of return and being able to count on a guaranteed
lifetime income stream. They may also prefer not to make investment
decisions. For those people, a fixed annuity is likely to make
more sense.
Other people, however, are more concerned with
the possibility of outpacing
inflation
and taking advantage of opportunities for growth. They see a variable
annuity as a way to guarantee at least a minimum return, have
some control over where their money is invested, and benefit from
the potential strength of the investment markets. They’re
willing to take the risk that their annuity performance may not
live up to their expectations.
Another feature of variable annuities, the guaranteed
death benefit, is sometimes attractive as well because it’s
seen as insurance against market losses. Annuity advocates argue
that this protection encourages investors to take more market
risk and enhances their potential for larger returns. Critics
say that the extra cost of the insurance isn’t justified
by the relatively small likelihood that the contract owner will
die during a period when the account balance has fallen below
the premium.
Have It Both Ways
One way to resolve the debate between steady income and growth potential, at least for the period that you’re collecting income, is to arrange to have a portion of your contract paid out at a fixed rate and the rest at a variable rate.
