This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Variable Annuities' Warning List Grows

Writing about tax-deferred annuities creates tremendous possibilities for misunderstandings and misleading uses of the information. So let me start with a series of warnings. Much like the label on your prescription medicine, these warnings inform you that the product within is designed to be a benefit, but only if you take it as directed, and avoid using it under the wrong conditions.

Here's the warning label for these tax-deferred, variable annuities:

  • Purchase only through a reputable dealer, with expertise in these products.
  • Purchase only from an insurance company with a strong financial balance sheet.
  • Understand there is no official federal bailout fund for insurance companies -- only state funds that may "assess" other insurers in case of a company failure.
  • Get a written explanation of all fees and charges.
  • Use only if you understand "surrender charge period" and are sure you won't need access to your money before that period expires.
  • Understand the risk of loss, as well what is, and isn't, covered by guarantees.
  • Understand the difference between "withdrawals" and taking an "annuitized" stream of income.
  • Understand what happens to the balance of your account if you die before taking out all your money.

Now, having read the warning label on the package, there are some interesting annuity products available in the marketplace. And some of the most generous ones are starting to disappear, as insurance companies reassess their ability to provide the returns they have been promising.

A tax-deferred variable annuity is a contract with an insurance company that lets you invest money for tax-deferred growth in a choice of mutual fund sub-accounts, which carry additional fees.

The value of your tax-deferred account depends on your fund investment choices within the annuity. The risk is that you make a wrong choice of investments and lose money.

That's why the industry has come up with a so-called guaranteed minimum income (and withdrawal) benefit. These protect your retirement income from bad investment decisions, at a cost and with some strings attached.

The guaranteed minimum income benefit provides, at an additional cost, protection against a market decline in the cash value of the variable annuity. That is, the insurance company guarantees a growth rate of 5% or 6% annually on the amount from which you will be able to withdraw income in the future. That "protected withdrawal value" is guaranteed no matter what the investment performance of your fund sub-accounts.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,356.87 +288.00 1.69%
S&P 500 2,012.89 +40.15 2.04%
NASDAQ 4,644.3120 +96.4780 2.12%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs