A majority of Americans aged 55 to 80 have fears about investment risks that are undermining their confidence to invest in the stock market. But with traditional pension plans becoming more rare and Social Security’s future in question, many Americans may need to pursue stock market gains in order to avoid a retirement income shortfall.

One way to pursue gains in the stock market while also limiting downside risks is through the use of living benefit guarantees that are offered with some variable annuities (for an additional cost).

Living Benefits
A variable annuity is a long-term financial vehicle designed for retirement purposes. The contract holder makes one or more payments to an insurance company in exchange for the promise of an income stream or lump-sum payment to be made at a future date. During the accumulation period, the insurance company invests some of the payments in subaccounts selected by the contract holder that pursue investment gains in various asset classes, including stocks.

Because it is possible for these investment subaccounts to lose money, some variable annuities offer living benefit guarantees at an additional cost to help guard against specific losses. These benefits can ensure that the contract will reach a minimum value, provide a minimum income amount, or provide an income for a specified period in the event that the subaccounts underperform.

There are contract limitations, fees, and charges associated with variable annuities, which can include mortality and expense risk charges, sales and surrender charges, administrative fees, and charges for optional benefits. Withdrawals reduce annuity contract benefits and values. Variable annuities are not guaranteed by the FDIC or any other government agency; they are not deposits of, nor are they guaranteed or endorsed by, any bank or savings association.

Withdrawals of annuity earnings are taxed as ordinary income and may be subject to surrender charges plus a 10% federal income tax penalty if made prior to age 59 1/2. Any guarantees are contingent on the claims-paying ability of the issuing company. Because variable annuity subaccounts fluctuate with changes in market conditions, the principal may be worth more or less than the original amount invested when the annuity is surrendered.