Variable Annuities for Retirement Savers Go Back to Basics

Even with today's simplified variable annuities, you need a good grasp of the pros and cons before putting part of your nest egg into one.

After years of making variable annuities more complex and expensive, some insurers are offering products that have fewer bells and whistles, are easier to understand and have lower fees.

If you have a higher-cost variable annuity, you might consider rolling the assets to a lower-fee annuity through a tax-free “1035 exchange.” But first check if you would be subject to a surrender charge, which can cost up to 7% to 10% of your balance if you leave the annuity in the first 7 to 10 years. The income rider won’t transfer if you cash out or switch annuities, so be wary of giving up guaranteed income based on a benefit-base balance that is higher than your investment value.

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Kimberly Lankford
Contributing Editor, Kiplinger's Personal Finance

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.