Types of Annuities

Variable Annuities: Asset Allocation

You're in the driver's seat when it comes to allocating your assets in a variable annuity.

You Decide!
With a variable annuity, you can allocate your money however you like, usually on a percentage basis. As an example: 10% in an aggressive growth stock portfolio, 15% in a growth stock portfolio, 32% in a growth & income portfolio, 28% in an income portfolio, 10% in an indexed portfolio, and 5% in a money market account.

Each time you add money, you buy a specific number of accumulation units, or shares, based on the net asset value (NAV) of the investment portfolio you’re putting your money into, adjusted for the annuity mortality and expense risk fee, or M&E, and any other (asset-based) fees that may apply.

As a result of providing individual control over retirement savings, variable annuity contracts are more flexible and as a result more complex than fixed contracts. In exchange for giving you more options and choices, they require you to make more decisions.

Management of Risk and Reward
As with any equity investment, you risk a loss of principal with variable annuities. But equity investments also offer greater potential for long-term reward and, equally important, better protection against inflation.

The key, of course, is the long-term commitment you make. While it is true that in some periods a fixed annuity might show stronger gains than a stock portfolio, historically the longer that money is in equities, the greater the potential for growth. (Past performance is no guarantee of future results.)

The principle of diversification, which means that your investment portfolios are invested in many different companies, industries and perhaps countries, helps protect you against sustained losses in a single stock or sector of the market. What it can’t protect you against, however, is that a particular portfolio of equities might not provide the level of performance you hope for.

Beating Inflation
Traditionally, variable annuity investments have outpaced inflation in two ways:

First, your earnings are taxed deferred and with the full amount of your earnings re-invested, your account should grow at a quicker rate. Taxes are paid when you eventually begin taking income.

Second, with variable annuities you may be able to leave some or all of your retirement savings in growth accounts even after you begin to take income. That means the payments you receive can increase over time—though of course they can also decrease if investment performance goes down.

Re-Allocating the Allocations
You create the asset mix that you’re comfortable with, either at different stages in your life or in different economic conditions. The flexibility of variable annuities lets you share in the benefits of a strong stock market, or move money into more stable accounts if you’re concerned about preserving your gains as you get closer to retirement.

No one mix suits every investor, though many investors emphasize stock portfolios, since historically they have provided the strongest returns over the long term, and thus the greatest opportunity for growth. Of course, no one can predict future growth.

Insurance Guarantees
An advantage of putting money into variable annuities is the insurance protection they provide.

• The guaranteed death benefit to protect beneficiaries against market downturns
• The right to choose a payout option that provides a guaranteed income you can’t outlive
• The guarantee that the fee that pays for this insurance will not increase
• All guarantees are based upon the claims paying ability of the insurer

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