For Mark Roberts’ Use: If you’re not sure whether you’ll really have enough income to retire, you aren’t alone: 38 percent of Americans* share your concern. What’s truly surprising is that this figure represents individuals not just in lower income brackets, but in upper brackets as well.

These worries likely stem from a variety of causes. One common problem is that many tax-advantaged retirement savings plans, such as IRAs and employer-sponsored 401(k) plans, come with annual contribution limits that may impede your ability to save enough money for retirement. Another common problem is that many workers are not able to participate in an employer-sponsored plan, either because they are self employed or because their employer does not offer this benefit.

Fortunately, there are other ways to save for retirement while still reaping tax advantages. A variable annuity is an insurance-based contract, funded with either a lump sum or premium payments, which can provide income in the future. This income can come in the form of a lifetime income for one person or two people, or payments that last a pre-determined number of years. While these are usually purchased with after-tax dollars, the annuity earnings are tax-deferred until withdrawn (subject to certain limitations). It is called “variable” because the contract value depends upon the performance of its underlying sub-accounts. Therefore, you can choose to invest conservatively or aggressively, based on your own willingness to take risks and your long-term goals.

Since variable annuities can fluctuate with changing market conditions, the principal value and returns are not guaranteed. They’re also not guaranteed by the FDIC, and significant surrender fees can apply if funds are withdrawn too early in the contract. While they can be a useful part of your portfolio for many reasons, it’s important to discuss variable annuities in depth with your financial advisor before making a final decision about investing in one.


*Journal of Financial Planning, December 2012 and January 2013