Four Alternatives to Variable Annuities

When most people think of annuities, they think of the more common variable annuity. However, variable annuities are far from the only annuity product out there; I'll detail a few others that might appeal to your investing appetite.

But first, a little on the variable annuity. The thought of investing in these vehicles may seem daunting or complicated to most people, but it is really very similar to investing in a company-sponsored retirement plan such as a 401(k) or IRA.

A variable annuity is a contract between you and the insurance company in which you receive periodic payments according to the changing market value of the underlying investment. More importantly, these payments can continue for the rest of your life.

This can protect retirees from the ever-increasing chance that they will outlive their assets.

You should consider investing in variable annuities only after exhausting the limits allowed in your 401(k) and IRA. And before you consider this option, you should understand how they differ from those common investment instruments.

First, there are no limits on the amount of money you can contribute to a variable annuity. Second, all money you contribute to a variable annuity is after taxes.

But most important, variable annuities have an insurance component not found in other types of retirement investments. This can make the annuity more attractive if you need and want the insurance. But it can also be less attractive if you don't.

Variable annuities also allow you to manage your funds as you choose by selecting the mutual fund investments that suit your personal risk tolerance and wealth-building priorities.

Unlike money you invest in a fixed annuity or a whole-life insurance policy, variable annuities are managed by an investment company using mutual fund "subaccounts" that are kept separate from the insurer's other assets. Therefore, your funds are not subject to claims by its creditors should the company become insolvent.

So that's the variable annuity. Here are four comparable investment vehicles that might be right for you depending on your investment goals and objectives.

Fixed Annuities

The insurance company also guarantees that the periodic payments will be a guaranteed amount per dollar in your account. These periodic payments may last for a definite period, such as 20 years, or an indefinite period, such as your lifetime or the lifetimes of you and your spouse.