When it comes to retirement planning, many individuals look to annuities as a way to provide a steady stream of income during their golden years. While traditional annuities impose limitations and fees on their holders, a self-directed variable annuity contract offers a more customizable and potentially profitable option.
What is a self-directed variable annuity contract?
A self-directed variable annuity contract is essentially an investment product that combines the benefits of a traditional annuity with the flexibility of a brokerage account. With this type of annuity, the policyholder has the ability to invest in a variety of securities and funds, allowing for potential growth in their retirement portfolio.
One key aspect of a self-directed variable annuity contract is the ability to choose how funds are allocated within the account. This means policyholders have control over the mix of assets, such as stocks, bonds, and mutual funds, that make up their annuity. The ability to make these investment decisions can lead to higher returns, but comes with more risk than a traditional annuity due to the fluctuating nature of the markets.
Benefits of a self-directed variable annuity contract
Aside from the increased potential for growth in investment returns, self-directed variable annuity contracts offer several other benefits over traditional annuities. For instance, many traditional annuities charge high fees for administration, insurance, and investment management. In contrast, self-directed variable annuities often have lower fees and fewer restrictions on withdrawals.
Another benefit of a self-directed variable annuity contract is the tax-deferred growth of investment earnings. This means that policyholders will not be taxed on any earnings until they begin making withdrawals from the annuity. This can be a significant benefit for those in higher tax brackets, as it allows for greater control over tax liability and potentially lower overall tax payments.
Risks of a self-directed variable annuity contract
While a self-directed variable annuity contract has the potential for greater returns, it also comes with more risk than a traditional annuity. Because the policyholder is responsible for investment decisions, there is a higher likelihood of financial loss if investments do not perform as expected.
Additionally, because a self-directed variable annuity contract is considered a security, it is subject to regulation by the Securities and Exchange Commission (SEC). This means that policyholders must be comfortable with the potentially complex regulatory environment that comes with this type of annuity.
A self-directed variable annuity contract can be a good option for those looking for greater flexibility and potential growth in their retirement portfolio. However, it is important to carefully consider the risks and benefits before making any decisions. As with any investment product, it is recommended to speak with a financial advisor before making any investment decisions.