- Date : 08/04/2021
- Read: 4 mins
Based on the investor’s financial profile and retirement horizon, a variable annuity can help to rebalance and diversify one’s portfolio.
A woman is self-sufficient only when she is financially secure. In a Retirement Readiness Survey by PGIM India Mutual Fund 2020, it was seen that most Indians do not have a retirement fund in place. While only 49% have planned for their retirement, the number of women among them is still unclear.
Men and women do seem to approach financial planning differently. Planning for a sound future is incredibly important for women because while traditional gender roles may have shifted for breadwinners in these times, many women are still confined as homemakers without a stable income.
As a woman who is working on ways to protect her income, investing your hard-earned money in a variable annuity is advisable in the long run. Read on for a detailed insight on how to take the route to variable annuities and why you should do so:
What is a variable annuity?
A variable annuity is a contract between you and an insurance company that is primarily intended for retirement purposes. Unlike other annuity options like a fixed annuity, a variable annuity allows you to dictate how you invest your money. A self-directed investment option, variable annuity allows a woman the freedom to invest the money as aggressively or conservatively as she likes.
Insurance companies often help investors with a list of pre-designed model portfolios from which funds can be picked. These sub-accounts can be set for automatic rebalancing on a predetermined schedule to redirect funds in your choice of investment.
Here’s a list of some of these portfolio options:
- Small, mid, and large-cap stock funds
- Government bond funds
- Balanced funds
- Money markets
Benefits of variable annuity
Investing in traditional portfolios for your retirement might give you more flexibility than looking at annuities. However, over a longer time frame, there are many financial benefits of investing in a variable annuity. Let’s see what they are.
Tax-deferred product: Variable annuity qualifies as an insurance contract made between an investor and the company. So, the earnings from this are tax-deferred. You do not need to pay any tax on the gains from your variable annuity until you begin withdrawals.
- Death benefit: Your annuity contract guarantees insurance against the money invested. It is often your initial investment that is paid out as a death benefit to your beneficiary. So, even if you incur losses over time, your beneficiary still gets back the original investment amount, unless any withdrawals are made.
- Guaranteed minimum accumulation benefit: GMAB falls under the ‘living benefit’ of variable annuities. It ensures that the value of your annuity does not fall below the principal amount invested, regardless of market performance.
- Guaranteed minimum withdrawal benefit: Like GMAB, GMWB is also a subset of the living benefit feature. It states that an investor’s aggregate total withdrawals can be more than the principal amount invested, not less.
- Guaranteed minimum income benefit: The last of the living benefit features, GMIB promises investors a minimum return rate on the principal amount irrespective of market fluctuations and volatility.
Variable annuities are a tax-deferred investment vehicle, until you begin withdrawls, that allows you to invest a lump sum amount or make periodic payments for retirement. A stream of steady income can be collected at a later time – ideally, post-retirement is a valuable supplement for as long as you live.
Related: 5 Delightfully simple ways to reduce stress during retirement
As a woman who is looking to safeguard her future, investing in a variable annuity is a sensible thing to do. Based on your risk appetite, financial goals, and retirement horizon, make an informed investment decision. If you lack the knowledge or expertise to study market instruments, take the help of a professional to help you grow your money. Read these 5 Tips every woman should follow to have a financially secured retired life.