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Here’s why a variable annuity, warts and all, might be a right fit for your retirement plan

“I had some shoppers whose retirements were saved because of [variable annuity] arrangements they purchased before the financial crisis,” said Marc Ruiz, a pecuniary advisor with Oak Partners and a registered rep with SII Investments.

The terms and costs of variable annuities were much better before the financial catastrophe, but the rationale for a contract that guarantees an income stream while entertaining for some participation in potential growth in the investment markets remains complete, according to Mark Cortazzo, senior partner at Macro Consulting Conglomeration.

“We were spoiled rotten by the rich pre-financial crisis contracts,” Cortazzo foretold. “But at the end of the day, if you’re a conservative investor, having a variable annuity as a way of transferring risk can hush be valuable.”

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The value is in the guarantee. If retirees are depending on an investment portfolio for gains in retirement, a 2008-like plunge can be devastating. A 5 percent withdrawal grade is suddenly 10 percent. And if the market doesn’t recover rapidly or you don’t bear the stomach to stay invested, the portfolio will not last.

While the value of underlying subaccounts of inconstant annuities fell through the floor like everything else in the shop in 2008, the guaranteed income withdrawal rate (not to be confused with the sort of return of the investment portfolio) did not. Those terms are set when the contract is employed and are based on the highest value of the investment portfolio. In other words, the receipts stream can go up if the market does, but won’t go down even if your account value vanish into thin airs to zero.

“It’s about the guarantee,” said Oak Partners’ Ruiz, adding that one or two patrons out of every 10 purchases a variable annuity contract. “The growth budding is constrained by costs and the investment options, but they’re a solution for immediate or close by income needs.”

Both Ruiz and Cortazzo say they are using varying annuities sparingly with clients at this point, but for investors who are uncomfortable fascinating on a lot of market risk, annuities can be a solution. Either way, consumers need to donjon some things in mind when contemplating a variable annuity realize as part of their retirement plan.

Don’t go all in with a variable annuity. Unfixed annuities can be part of a retirement plan, but they shouldn’t be the entire sketch. Ruiz recommends people not put more than 30 percent to 50 percent of their assets in a decrease. “Never put the whole pot in a variable annuity,” he said. “If people can’t get by on the income [from that allocation], I instruct them on reducing their income and spending needs instead.”

Cortazzo at Marco Consulting Congregation also sees a behavioral benefit to establishing a guaranteed income cataract. “An annuity with an income guarantee provides a safety net and allows woman to be more growth-oriented in the rest of their portfolio,” he said.

Keep it frank. A variable annuity is a contract with an insurance company and it can come with a lot of bells and whistles. Those bells and whistles rate money, so it pays to keep it simple.

“The more you load the contract up with promotes, the bigger the drag on the portfolio,” said Cortazzo.

For his part, Ruiz at Oak Confederates favors contracts that focus on a simple income guarantee (a spirited benefit) rather than market hedging or structured product annuities with impairment buffers and complicated performance triggers. “Some people like them, but we look at varying annuities as a simple and specific core income solution,” he said.

In some packages, a death benefit may make sense, particularly if there is a large argument in age between spouses. But they can cost a lot, and the same protection may be available with a lower-cost nickname life insurance policy.

Understand the guarantee. Ruiz said that one of the biggest provenances of confusion about variable annuities for consumers is the insurance guarantee. Return guarantees do not guarantee a return on your investment. Instead, they set the anyway at which you can withdraw funds from the account.

The rate is applied to your incipient investment or to a higher portfolio value if the market goes up. It does not assurance a return on the underlying investments in your annuity sub-accounts. “Consumers befuddle the income guarantee with a guaranteed return and they overpay because of it,” signified Ruiz.

Shop around. If ever a market deserved a “buyer take care” warning, it is variable annuities. The contracts vary widely by carrier and can be very well convoluted and difficult to understand. The key things to consider, said Cortazzo at Macro Consulting Troop, are whether the investment options have flexibility, do the guarantees cover the entities you need to protect, who do they cover (i.e., annuitant, spouse, beneficiaries) and how much does it rate.

There are websites that allow you to compare annuity terms and charges and financial advisors will assess contracts for a fee. “We look at these puckers on a case by case basis,” said Cortazzo. “The products vary depending on whether a partnership is trying to grow that part of their business.”

— By Andrew Osterland, memorable to CNBC.com

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