Skip to content

Is an Investment-Only Variable Annuity Right For You?

Traditional variable annuities (VAs) have long served as a tax-smart retirement savings option. In today’s market environment, a renewed emphasis has been placed on investment-only variable annuities (IOVAs), which seek to keep costs low while harnessing the power of tax deferral.

An investment-only variable annuity (IOVA) is an annuity that seeks to provide investors with a simple way to set aside taxable assets in a tax-deferred entity focused on investment. Unlike most traditional variable annuities, there are no additional riders to guarantee a specific death benefit or income stream. It is simply a tax-deferred account similar to a 401(k) or IRA, which you can access without penalty as early as age 59½. Investments in an IOVA involve fees and charges, including but not limited to sales charges, investment management fees and administrative expenses. Investments in a variable annuity are subject to market risks, including loss of principal.

Why IOVAs? Because Americans are looking for ways to bolster their retirement savings.

54%

More than half of U.S. investors are worried about not having enough money for retirement1

23%

Only 23% of American workers are very confident they will have enough money for a comfortable retirement2

20-30 more years

Americans are living longer; today a person reaching 65 can expect to live another 20-30 years3

Who may potentially benefit from investment-only variable annuities?

  • High income earners in the highest tax bracket with a large portion of investable assets in taxable accounts.
  • Income earners expecting to be in a lower tax bracket after retirement.
  • Investors at least 10 years away from retirement seeking to maximize the benefit of tax deferral.
  • Those who have maxed out their 401(k) or IRA contributions and seek additional tax deferral.
  • Investors with significant exposure to tax-inefficient investments.

Resources

Tax-Advantaged Retirement Savings

Download

Your financial professional can help you develop a long-term investment plan with a balance of strategies that addresses your need for portfolio growth, income, capital preservation and risk management.

Variable annuities are long-term, tax-deferred investment vehicles designed for retirement purposes. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty charge and/or surrender charges. Investments in a variable annuity are subject to market risks, including loss of principal. Guarantees are based on the claims-paying ability of the insurer. Variable annuities are sold by prospectus only.

Franklin Resources, Inc., its affiliates and its employees are not in the business of providing tax or legal advice to taxpayers. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties or complying with any applicable tax laws or regulations. Tax-related statements, if any, may have been written in connection with the “promotion or marketing” of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

  1. Source: April 2019 Gallup poll.
  2. Source: Employee Benefit Research Institute, April 2019.
  3. Source: Social Security Administration.
     

All investments involve risk, including possible loss of principal. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges.

Equity investments generally provide an opportunity for more capital appreciation than fixed income investments, but they are subject to greater market fluctuations.

Diversification does not assure a profit or protect against market loss.

Any information, statement or opinion set forth herein is general in nature, is not directed to or based on the financial situation or needs of any particular investor, and does not constitute, and should not be construed as, investment advice, forecast of future events, a guarantee of future results, or a recommendation with respect to any particular security or investment strategy or type of retirement account. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies should consult their financial professional.

Franklin Distributors, LLC. Member FINRA/SIPC.