Mistake No. 4: Not fully understanding portfolio behavior under changing conditions
The insurance company that is offering the variable annuity and its living benefit has taken steps to try to ensure that it is able to meet its future obligations. These steps often involve the ability to restrict investment choices, as well as moving money in or out of the subaccounts you have selected.
It is absolutely critical that you understand how the annuity will behave in various market cycles. You need to know what happens to your asset allocation in market down cycles, as well as any subsequent rallies. Of course, understanding this can be very complex and difficult. At the very least you should make sure that your broker or adviser understands how the annuity will behave.
Mistake No. 5: Working with an adviser who is not a variable annuities expert
Annuities can be helpful tools in the retirement planning process, but they can also fail investors if utilized incorrectly. Ask your broker or adviser how many different annuity providers he or she works with, how long he or she has been working with them and what the selection process is. There are hundreds of choices available, many of which frequently change.
A firm with a dedicated staff to review these changes and keep the advisers or brokers aware of all the changes will, in my opinion, provide better long-term results and reduce the chance of owning an investment that does not behave the way you thought or intended.
Some other common mistakes
Selecting unneeded benefits, unnecessarily adding to the cost of the investment
Selecting the wrong registration (individual vs. joint)
Ignoring tax loss opportunities from underperforming annuities
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.