Building Your Pension Plan With Variable Annuities

Let's first differentiate between fixed and variable annuities. On one hand, fixed annuities are suitable for individuals who want fixed income from their investments for the duration of the contract, which usually extends until the death of the annuitant. The insurance company is obligated to pay out both the fixed earnings and principal set on the contract.

On the other hand, the amount of total payouts under the variable annuity plans is determined by the performance of the equity securities in which the contributions are made. Thus, in a boom market, the payments will increase but a bust market can mean lower payouts.

Alternative Method

With that being said, how can you build a reliable pension plan with variable annuity plans? The rules are relatively simple but the payoff can be rewarding in more ways than one.

Just consider the economic environment where annuities of all types including variable annuities operate. Employers are less generous with their retirement packages because of their recession woes; the Social Security Administration is in a sad state with little hope in the near future for redemption; and the stock market continues to experience great uncertainties never before seen since the Great Depression.

With all these factors combined, more and more individuals are turning to variable annuity contracts as a means of generating guaranteed retirement income instead of looking at their employers' pension plans. We must say that this is the right step in the right direction but only when these annuities are carefully entered into, which can also be said for indexed and fixed annuities.

After all, building your own pension plan without completely relying on your employment pension plan is always a great idea. Safety nets are always appreciated especially in your golden years when you should be relaxing instead of working for endless hours on end.

Small Investments Reaping Big Rewards

If you choose the most reliable insurance company, you can invest small amounts in variable annuities and yet reap big rewards in the future. Keep in mind that these annuities are similar to tax-deferred savings plans like the 401(k) usually offered through employers.

Basically, you regularly contribute a small amount of money over an extended period of time, which will be pre-determined on the contract. Your contributions do not just sit in a bank vault waiting for moths to eat it. Instead, your money is pooled into variable annuity sub accounts that then earn income for the fund.

From such income, payments can then be made to the individual - you, of course, as one of several annuitants in the variable annuities contract.

We understand if you are worried about the sub accounts losing money, which mean less payout to your end. In this case, we suggest that you avail of the so-called minimum withdrawal benefit protection wherein you will receive a specific amount regardless of how well or how worse the portfolio performed in the market. You may have the choice between a set payment for the rest of your life, for a certain period, or a set amount.

In the end, variable annuities may provide for lower returns at higher contributions but these represent a conservative approach to pension plans. You may want to consider these investments, too.

For more information on variable annuities, log on to http://www.freeannuityinfo.net/ and be guided by professionals.

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