There is no simple answer as to how wise any investing in annuities would be for the single mom. This is especially true for variable annuities. It all comes down to each individual person and where they are in their financial life. These are not always viable options for investing money for retirement, however they should not be overlooked either. To know if this is a profitable investment avenue, it is best to discuss annuities in more detail with a financial planner or insurance agent. The first step of financial security and success involves gathering all of the facts and holding them up against what future financial goals are desired.
What are Variable Annuities?
Essentially it is an agreement between the insurer and the investor saying that the you, the investor, will put in so much money and the insurer will send out monthly payments. This is a fancy way of saying that you agree to purchase mutual funds that are then invested in money market accounts, bonds, stocks, or a combination of them all. The actual monetary results will be reflected by what you choose to invest in. Learning about the stock market or finding a trusted financial advisor would be in your best interest.
Is It the Same as Buying Mutual Funds?
The short answer is no. These types of annuities are meant as long-term investment strategies. Single moms looking to invest for their retirement would find these a good fit. Keep in mind that there are fees and penalty charges for removing money early. You can change stocks or specific investments within the guidelines, but removing money will cost you.
Variable annuities retain periodic payments after retirement and even after death to the beneficiary of the original holder. There is a specific Death Benefit that will payout X amount to your beneficiary should you die before making the first contractual payments. Another difference to investing in variable annuities is that the income tax is deferred until you take the money out. This means that you will not pay income tax on the money you invest.
Understand Before Investing in Annuities
For anyone considering investing in variable annuities, it is best to ask a great deal of questions. For a single mom it is even more important. One of the more important items to understand are the number of fees that are related to these investments. A one-time Surrender charge is assessed if you remove your money before a certain number of years have passed. Other fees will be acquired annually or perhaps even more often. These include:
- Administration
- Expense Risk
- Mortality charge
- Long-term care insurance
- Additional hidden fees.
Know what to expect by asking questions. Be aware that some variable annuities will try to lure you in with Bonus credits/money. If this happens make sure to compare their fees with other options. Quite often you end up paying for these bonus credits with higher administration fees.
Remember that there is a risk in variable annuities because the stock market does not always continue on an upward path. The good news is that staying the course over the long term allows for those ups and downs. The best a single mom can do is ask questions and weigh her options when considering investing in annuities.