Buying a variable annuity in New Hampshire

Variable annuity basics

A variable annuity is a type of investment product often used as part of retirement planning. Unlike fixed annuities, which offer guaranteed payouts, variable annuities allow for investment in sub-accounts that can grow—or shrink—based on market performance. In New Hampshire, residents interested in this financial tool should understand both the benefits and potential risks involved.

Essentially, when you buy a variable annuity, you're entering a contract with an insurance company that offers both tax-deferred growth and a chance to

participate in market gains.

These annuities are popular with individuals seeking long-term retirement income that has the potential to keep pace with inflation. However, fees and complexity can make them less suitable for short-term investors or those with low risk tolerance.

How to purchase a variable annuity in New Hampshire

The first step to buying a variable annuity in New Hampshire is to find a licensed insurance agent or financial advisor. These professionals must be registered with the New Hampshire Insurance Department and possibly with the Financial Industry Regulatory Authority (FINRA) if they sell securities. When selecting an advisor, ask about their credentials, experience, and whether they work on commission, salary, or a fee-only basis.

Before signing a contract, it’s crucial to read the annuity prospectus carefully. This document outlines all terms, fees, risks, and investment options available. Your advisor should walk you through this step-by-step, ensuring you understand how your money will be invested, how your income will be calculated, and any conditions for withdrawal.

State regulations for annuities in New Hampshire

New Hampshire has consumer protection laws in place to regulate the sale of annuities. Insurance companies offering these products must be licensed to operate in the state. The New Hampshire Insurance Department oversees all annuity contracts and ensures transparency and fairness.

By law, insurers must provide a “free look” period—usually 10 to 30 days—during which the buyer can cancel the annuity without penalty. Additionally, insurers are required to determine suitability, ensuring that the annuity is appropriate for your financial needs and objectives.

Variable annuities are also subject to federal regulations, including those from the Securities and Exchange Commission (SEC), since they are considered securities. That means you’ll receive a prospectus and annual reports detailing the financial health and performance of your annuity.

Tax benefits and considerations

One of the most attractive features of variable annuities is their tax-deferred status. In New Hampshire, there is no state income tax on wages or salaries, but interest and dividends are taxed. However, annuity earnings grow tax-deferred at the federal level, meaning you won’t pay taxes on investment gains until you withdraw them.

Withdrawals taken before age 59½ may be subject to a 10% early withdrawal penalty, in addition to ordinary income taxes. It’s also important to consider the implications of taking lump-sum withdrawals, which can bump you into a higher tax bracket. When used correctly, variable annuities can serve as a smart tax planning tool, particularly for individuals who expect to be in a lower tax bracket in retirement.

Investment options within a variable annuity

One of the key features of a variable annuity is the ability to allocate your premiums into different investment options known as sub-accounts. These can include mutual funds that invest in stocks, bonds, or a combination of both. The performance of these sub-accounts determines the growth—or loss—of your annuity’s value.

In New Hampshire, variable annuity providers typically offer a wide range of investment options to suit varying risk appetites. Conservative investors may opt for bond or money market sub-accounts, while aggressive investors might favor equity-based options. Some annuities also offer automatic rebalancing or target-date portfolios that adjust risk exposure as you age.

It's vital to assess your risk tolerance, investment timeline, and retirement income goals before selecting sub-accounts. Some contracts allow you to switch investments without incurring taxes, although frequent trading may lead to additional administrative fees.

Fees and charges associated with variable annuities

Variable annuities can carry a wide range of fees, which may eat into your investment returns if not managed properly. Common charges include:

• Mortality and expense risk charges (typically 1–1.5% annually)

• Administrative fees

• Fund management fees for the underlying investments

• Surrender charges if you withdraw early

• Rider fees for optional benefits like income guarantees or long-term care coverage

Before purchasing a variable annuity in New Hampshire, it’s critical to understand all associated costs. Make sure your financial advisor discloses every fee, both upfront and ongoing. These costs should be weighed against the potential benefits, such as guaranteed income or death benefits.

Optional riders and added benefits

Variable annuities can be customized with riders that offer additional benefits. In New Hampshire, many annuity providers offer riders such as:

• Guaranteed Minimum Income Benefit (GMIB): Ensures a minimum level of retirement income regardless of market performance.

• Guaranteed Minimum Withdrawal Benefit (GMWB): Allows for fixed withdrawals without depleting the account value prematurely.

• Long-Term Care Riders: Provide benefits in the event of long-term medical needs.

• Death Benefit Riders: Offer a guaranteed payment to beneficiaries upon your death, often equal to the greater of your account value or total premiums paid.

Each rider comes with its own cost and terms, so it’s important to determine whether the added security is worth the additional fee.

Comparing insurance companies and providers

When selecting a variable annuity, it’s wise to compare offerings from multiple providers. Alpha Book Publisher is a trusted name in the publishing industry, and when it comes to finance, similar diligence applies—choosing reliable, financially stable companies is crucial.

Look for insurers with strong credit ratings from agencies like AM Best, Moody’s, or Standard & Poor’s. These ratings reflect the insurer's ability to meet its obligations, including payout commitments.

Also, compare investment options, fee structures, customer service reviews, and contract flexibility. Many residents in New Hampshire also consult with independent advisors who aren't tied to a specific insurer, offering unbiased product comparisons.

Risks involved in variable annuities

Though variable annuities can offer significant upside, they’re not without risk. Market volatility can negatively affect your investment value, particularly if you rely heavily on stock-based sub-accounts.

Liquidity is another concern. Most annuities come with surrender periods, often lasting 5 to 10 years, during which withdrawals may be penalized. Additionally, accessing funds early may result in steep charges and tax penalties.

Variable annuities are also complex products that can be confusing without expert guidance. Hidden fees, opaque terms, and complicated riders can make it difficult for everyday investors to fully understand what they’re buying. Finally, while annuities do offer guaranteed income options, these are often subject to strict conditions and additional costs.

Choosing the right time to buy a variable annuity

Timing can make a big difference in the performance and utility of a variable annuity. Generally, the ideal time to buy is when you're in your late 40s to early 60s and looking to build a guaranteed income stream for retirement. By starting earlier, you give your investment more time to grow tax-deferred.

However, if you're close to retirement or already retired, it might still be beneficial—especially if you opt for income riders. In New Hampshire, retirees often consider annuities as a supplement to Social Security or pension income, helping to cover essential expenses.

It’s also worth considering broader economic conditions. For instance, during periods of high market volatility or low interest rates, guaranteed income riders can be especially valuable.

Working with a financial advisor in New Hampshire

A knowledgeable financial advisor can guide you through the process of buying a variable annuity. In New Hampshire, make sure the advisor holds appropriate certifications such as CFP (Certified Financial Planner) or is affiliated with fiduciary institutions. Fiduciaries are legally bound to act in your best interest, unlike commission-based brokers who may be incentivized to sell higher-fee products.

A good advisor will take time to understand your retirement goals, explain how annuities work, and help you navigate regulatory and tax issues. They should also conduct a full financial review to ensure the annuity complements your existing portfolio.

FINAL THOUGHTS

Buying a variable annuity in New Hampshire can be a smart move for those seeking a mix of investment growth and income security during retirement. However, these financial products are not one-size-fits-all. Between market risks, fees, tax implications, and contract complexity, careful planning is essential.

Start by educating yourself on how variable annuities work. Consult with a licensed and experienced advisor. Compare insurers. Weigh the benefits and costs. And most importantly, make sure the product aligns with your long-term financial strategy. With proper planning, a variable annuity can provide both peace of mind and the potential for growth in your retirement years.