by Bill Sheehy

What do you think of variable annuities?" is the second most frequently asked question we hear after "What do you think the market will do?" No one can tell you the short-term direction of the stock market, but variable annuities can play an important role in your retirement plan if you’re over age 50.

Unless you have recently studied annuities, whatever you know about them is probably not true. In the past, annuities were primarily a means of guaranteeing lifetime income while systematically depleting the principal. Annuities were invested in fixed income portfolios at a very low rate of return.

The last 10 years have seen a proliferation of Variable Annuity products which offer interesting policy riders. For an additional fee, they may guarantee lifetime income without "annuitizing" the contract by systematically depleting the principal. Investments are sometimes placed into a portfolio that holds a high percentage of equities. The reason for this more aggressive approach is because today’s Variable Annuities provide a Guaranteed Withdrawal Benefit which grows over a period of years, at a stated percentage of growth or the Account Value whichever is greater, regardless of the underlying performance of their portfolio. This feature gives the annuitant a lifetime income stream which is determined by multiplying the Guaranteed Withdrawal Benefit by a predetermined withdrawal percentage based on the age the annuitant begins to receive income.

If this sounds complicated, well, it is complex, and annuities seem even more baffling because every annuity provider describes different provisions in different terms. However, if you can define your objectives, you can often find an annuity product that will transfer some of the risk of outliving your income to the insurance carrier, while also giving yourself the opportunity to share in equity growth.

There is no perfect variable annuity because everyone has different needs. Your most suitable annuity depends on your age, your desire to pass assets to your heirs, investment horizon, risk tolerance, other assets, other sources of income and your need for a guaranteed income stream. Since markets are predictably unpredictable – as we have recently witnessed, annuities can at least help you manage the cash flow you need in your later years.

Variable annuities are not for everyone. Regrettably, some annuities have been sold by financial professionals who failed to disclose such issues as fees and surrender charges, and many people have purchased variable annuities without thoroughly reviewing the policy provisions. However, if you buy variable annuities with your eyes wide open, you might appreciate the potential for cash flow that they provide in your retirement income planning.

What do I think of variable annuities? They are helpful for many people. To decide for yourself, define your retirement income goals, and then find a knowledgeable financial advisor who will help select the right annuity to match your goals – and who will take the time to explain the benefits and disadvantages of the annuity.

Sheehy Associates can recommend variable annuities as part of your retirement planning strategy.

Variable annuities are long-term, tax-deferred investment vehicles designed for retirement purposes and contain both an investment and insurance component. They are sold only by prospectus. Guarantees are based on claims paying ability of the issuer. Withdrawals made prior to age 59 ½ are subject to 10% IRS penalty tax and surrender charges may apply. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. The investment returns and principal value of the available sub-account portfolios will fluctuate so that the value of an investor’s unit, when redeemed, may be worth more or less than their original value.

Bill Sheehy is owner of Sheehy Associates Inc. which specializes in Retirement Planning for individuals and corporate 401(k) plans. He is a Certified Financial Planner, a Certified Employee Benefits Specialist, a Certified Fund Specialist and a Chartered Retirement Plan Specialist. He can be reached at or by calling 609-586-9100.

Sheehy Associates. 3812-B Quakerbridge Road, Suite 208, Hamilton. 609-586-9100.

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC

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