Comprehensive Variable Annuity Return Tracker

Comprehensive Variable Annuity Return Tracker

The Real Cost (or Problem)

Variable annuities often masquerade as simple investment vehicles designed to provide retirement income with tax-deferred growth. However, the reality is that many investors lose money due to the complexity and hidden fees associated with these products. Surrender charges, mortality and expense fees, and investment management fees can significantly erode returns. Furthermore, poor investment choices within the sub-accounts can lead to underperformance. The irony is that the very product marketed as a safe harbor for retirement savings can end up being a sinking ship if not monitored and understood thoroughly. Thus, calculating the actual return on investment is crucial to uncover hidden costs and evaluate performance against expected benchmarks.

Input Variables Explained

To effectively utilize the Comprehensive Variable Annuity Return Tracker, you must gather specific input variables. Here's a breakdown:

• Initial Investment Amount**: This is the total amount you initially invested in the variable annuity. You can find this on your policy statement or confirmation documents upon purchase.

• Annual Contribution**: Any additional amounts you contribute to the annuity after the initial investment. This might be detailed in your annual statements or quarterly reports.

• Withdrawal Amount**: If you've taken distributions, you need to input these amounts. Look at your transaction history or withdrawal statements to verify these figures.

• Investment Management Fees**: This is often expressed as a percentage of your account value and can be found in the product's prospectus under "Fees and Charges." Be thorough; many investors overlook these costs.

• Surrender Charges**: If applicable, these are the penalties for withdrawing funds in the early years of the contract. Check your contract for the specific schedule of surrender charges—it’s usually buried in the fine print.

• Mortality and Expense Risk Charges**: These are ongoing fees for insurance and administrative costs, typically expressed as an annual percentage. They can also be found in the prospectus.

• Performance of Sub-Accounts**: Input the annual returns of the funds in which your annuity is invested. This data can typically be found on the fund’s website or in your policy’s performance reports.

Accurate input of these variables is essential because inaccuracies will distort your return calculations, leading to misguided financial decisions.

How to Interpret Results

Once you input the necessary data into the Comprehensive Variable Annuity Return Tracker, the tool will produce a variety of outputs. Here’s a breakdown of what these numbers signify:

• Net Return**: This figure represents your actual earnings after accounting for all fees and withdrawals. If this number is negative, it should raise immediate red flags—you're losing money, not growing your investment.

• Effective Annual Rate (EAR)**: This provides a true reflection of your investment’s growth over time, factoring in compounding. Compare this rate against benchmarks like the S&P 500 or other relevant indices to gauge performance.

• Total Fees Paid**: This output shows the cumulative fees deducted over the investment period. A high fee total relative to returns should prompt a reevaluation of whether the variable annuity is worth holding.

• Projected Future Value**: Based on your current inputs, this figure estimates what your investment could grow to in the future. However, maintain a healthy skepticism—these projections can be overly optimistic and often do not factor in market downturns.

Understanding these outputs can illuminate whether you're on track to meet your financial goals or if adjustments are needed.

Expert Tips

• Regularly Review Your Policy**: Don’t take your eye off the ball. Variable annuities can change over time, and your fees or investment performance may shift. Periodic reviews are essential.

• Negotiate Fees**: If you find your fees to be exorbitant, don’t hesitate to ask your broker for a better deal. Many are willing to negotiate, especially if you have a substantial investment.

• Diversify Within Sub-Accounts**: Don’t put all your eggs in one basket. Ensure your investments within the annuity are diversified to mitigate risk and enhance potential returns.

FAQ

• What is a variable annuity?** A variable annuity is a long-term investment product that combines insurance with investment options. It allows for tax-deferred growth but may come with various fees and risks.

• How do I know if my variable annuity is underperforming?** Compare the net return and effective annual rate against relevant market benchmarks. If your annuity consistently underperforms, it may be time to consider alternatives.

• Can I withdraw money from my variable annuity anytime?** While you can withdraw funds, doing so may incur surrender charges and tax implications, especially if taken before age 59½. Always check your specific contract details before proceeding.