What if you found out that a savings product that you thought was a good deal was perhaps not? You’d be quick to look for alternative ways to save, wouldn’t you? Variable annuities often look like great investments on the surface. With a variable annuity, you can invest in a savings vehicle, with no income restrictions, that grows tax-deferred until withdrawal in retirement. A Variable annuity counts on stock market growth for its earnings; variable annuities held over periods of time that feature strong market growth can result in impressive yields. Also, variable annuities typically feature a variety of optional living and death benefits, which protect your investment in case of your death. However, hidden in the pages of dense terms and conditions for variable annuities are fees that can average 1.35% or more of your assets annually. These fees can cut into your investment earnings, and in fact even undermine the reasons that you decided to buy a variable annuity in the first place.

The high fees generated by variable annuities also pay high commissions to variable annuity salespeople. These high commissions can lead salespeople to engage in questionable sales tactics, high-pressure selling or to push them into selling a variable annuity to people who are not well suited for them. There have been many reports to the Security and Exchange Commission describing how some people have been tricked or bullied into purchasing an unsuitable variable annuity.

That said, for some, variable annuities are still great investments, mostly for those people with higher risk tolerances and longer time horizons. Those who have a lower net worth or risk tolerance and were looking into variable annuities should first consider saving money in other tax-deferred accounts, such as 401ks and Roth and traditional IRAs. Once you’ve maximized these accounts, a fixed-indexed annuity may be a better choice for you.

While a variable annuity invests your funds directly in the stock market via a series of sub-accounts, fixed-indexed annuities only tie your interest earnings to a particular stock market index. Interest is calculated by comparing a series of snapshots of the market index’s value on certain dates. There are a few different formulas for this way of calculating interest; your annuity broker will be able to explain it to you further.

Fixed-indexed annuities offer the same tax-deferred benefits as variable annuities, and even feature guaranteed minimum interest rates, unlike a variable annuity where you can easily lose your earnings and even your original deposit. Is a variable annuity sounding less attractive to you now? If so, contact the AnnuityForLife.com Specialists at 1-888-261-6237 to learn more about other annuity options.