Should you buy a variable annuity for retirement?

The better question is:

What are you trying to accomplish in retirement?

Too many people start by asking about a specific product instead of defining the problem they're trying to solve. Retirement planning should always begin with your goals—not with a product name.

Key Takeaways

• Variable annuities are designed differently than fixed annuities.
• They are not built around contractual guarantees in the same way fixed annuities are.
• Start with your retirement objectives before choosing any annuity.
• If your goal is market growth, understand the costs and risks involved.
• If your goal is guarantees, another type of annuity may be more appropriate.
• Buy an annuity for what it will do—not for what it might do.

What Is a Variable Annuity?

A variable annuity is an insurance contract that allows your money to be invested in underlying investment options, often similar to mutual funds.

Unlike fixed annuities, the value of a variable annuity rises and falls based on market performance.

While many contracts allow you to add optional riders for additional guarantees, the account value itself is subject to investment risk.

Understand What You're Buying

One way to think about a variable annuity is as an investment portfolio wrapped inside an insurance contract.

That insurance wrapper may provide certain tax advantages or optional guarantees, but it also typically comes with additional costs.

Historically, variable annuities have often carried higher annual fees than many other retirement investment options, particularly when optional riders are added.

Start With Your Goal

Before evaluating any annuity, answer these two questions:

What do you want the money to contractually do?

When do you want those contractual guarantees to start?

Those answers should determine whether an annuity belongs in your retirement plan—and if so, which type.

Choosing a product before identifying your objective often leads to the wrong solution.

The PILL Framework

Every annuity is designed to solve one or more specific retirement objectives.

Think of the PILL acronym:

• Principal Protection
• Income for Life
• Legacy
• Long-Term Care

If your retirement plan centers around one or more of these goals, an annuity may be appropriate.

If your primary goal is simply maximizing investment returns, a variable annuity may not be the most efficient solution.

If Your Goal Is Market Growth

Many people consider variable annuities because they want stock market exposure combined with tax deferral.

There's nothing wrong with wanting long-term growth.

However, it's important to weigh that potential against:

• annual contract expenses
• investment management fees
• optional rider costs
• surrender charge schedules
• market risk

If you're primarily seeking market returns, compare all available investment options before deciding whether an insurance wrapper adds enough value for your situation.

Guarantees Versus Growth

Retirement planning often involves balancing growth and certainty.

Variable annuities generally emphasize market participation.

Fixed annuities emphasize contractual guarantees.

Neither approach is automatically better.

The appropriate solution depends on what role that portion of your retirement portfolio is intended to play.

If you need dependable lifetime income, principal protection, or other guarantees, you may want to evaluate fixed annuity strategies as well.

Don't Shop by Product Name

Instead of asking:

• Should I buy a Variable Annuity?
• Should I buy a Fixed Index Annuity?
• Should I buy a MYGA?
• Should I buy a SPIA?

Ask yourself:

What problem am I trying to solve?

Once you've clearly defined the objective, choosing the appropriate retirement solution becomes much easier.

Retirement Is About Risk Management

Every retirement strategy involves trade-offs.

Some retirees are comfortable assuming market risk in pursuit of higher returns.

Others prefer transferring some of that risk to an insurance company through contractual guarantees.

Neither approach is universally right or wrong.

The best retirement strategy is the one that aligns with your goals, your risk tolerance, and your income needs.

Where to Compare Annuity Options

If you're evaluating retirement annuities and want to compare contractual guarantees from multiple insurance companies, you can use our annuity calculators here:

https://www.stantheannuityman.com/annuity-calculator/

The Bottom Line

Whether you should buy a variable annuity for retirement depends far less on the product itself than on what you're trying to accomplish.

If your primary objective is market growth, carefully evaluate the costs, risks, and alternatives before choosing a variable annuity.

If your priority is Principal Protection, Income for Life, Legacy planning, or Long-Term Care solutions, other annuity strategies may provide stronger contractual guarantees.

The best retirement decision starts by identifying your goal—and then selecting the product that contractually solves it.

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