Risks of Variable Annuities: What You Need to Know Before Investing

Introduction: “Like any investment, variable annuities come with some risks. It’s important to understand these before diving in, so let’s look at what you should consider to help you make an informed decision.”

Main Sections:

• Market Volatility: “Since variable annuities are tied to the stock market, their value goes up and down. If the market does well, you could see great growth, but if it drops, so does your annuity’s value.”
• Fees and Charges: “Annuities come with fees—some of which can be on the higher side. This includes fees for managing your account, as well as any special riders you add. Understanding these is key to knowing what you’re paying for.”
• Liquidity Constraints: “If you decide to withdraw money early, you might face penalties. Annuities are usually a long-term investment, so it’s best not to rely on them for short-term needs.”
• Example Scenario: “Imagine John buys a variable annuity with a high potential for growth, but after five years, he needs to pull some of the money out. Unfortunately, he’ll face withdrawal fees, plus his account may not have grown as much due to market dips.”

Conclusion: “Variable annuities can work well for those comfortable with some risk and fees, but it’s essential to go in with a clear understanding of what to expect.”