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Jim Lentini: The value of variable annuities in today’s market

Posted: December 21, 2009 10:26 p.m.
Updated: December 22, 2009 4:55 a.m.
One of the greatest advantages of variable annuities is that you can move your investments within your annuity among stock, bond, money market and fixed accounts - and all with "no current taxation."

The bottom line is that investors who purchased combination fixed and variable annuities over the past years are counting themselves among the fortunate, because not only can they make tax-free exchanges among the fixed and variable options available in their annuities, they can make them in both directions - out of variable investment options and back.

The wisdom of variable annuities is to have asset allocation flexibility today, which can be exercised without current income tax consequence.

Managing risk
Some of the most innovative variable annuity risk management programs available today provide computer models to automatically shift investments and can even guarantee no loss of account value over a specified period.

Other new programs on the market require annuity owners to invest in a specific asset allocation model and stick with the program for years to get a principal guarantee.

In either case, variable annuity investors are able to take advantage of some of the latest risk reduction strategies.

Transfers at death
While many investments create a problem at death, a variable annuity with the proper options offers a spouse who is beneficiary to become the annuitant at death, and offers the contingent beneficiaries to either stretch the payment over five years or over their life expectancy.

This may offer better flexibility and/or tax treatment than passing through a living trust.

Adjusting to changing markets
Variable annuities are the very tools investors need in changing markets: dollar cost averaging, asset allocation, tax-free transfers within sub-accounts, a death benefit and now they offer riders that guarantee the principal, future income growth and protection from down markets when it is time to begin withdrawals for your retirement.

Variable annuities are not easy to understand. It is always advised to discuss them in detail with your financial advisor, question the fees and costs, to be sure it fits your financial plans, needs and goals for investing for your future retirement.

With the options offered, a variable annuity has a place in most financial planning. The guarantee riders offered add peace of mind for protecting principal.

Always consult your financial advisor or someone who is familiar with this type of product and the various riders. Additionally, money invested in annuities avoids probate and allow flexible estate planning options to minimize tax consequences.

Remember what Will Rogers said many years ago: "I'm not so much concerned about the return on my money as I am about the return of my money."

Jim Lentini, CLU, ChFC, IAR is president of Lentini Insurance & Investments, Inc. His column reflects his own views and not necessarily those of The Signal.


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