What is a Variable Annuity? 4 Key Details You Should Know

If you’re thinking of annuities as a retirement plan option, or are just curious about them, you’ll want to continue reading. Below, we’ll explain what a variable annuity is, how it works, and four key details you should know. By the end, you should better understand annuities and whether they’re the right retirement planning choice for you. So read on!

How does a variable annuity work?

A variable annuity contract is a form of insurance connected to a corresponding investment account. Over time, you can make regular contributions and “annuitize” the contract when you need a steady income. Variable annuities serve as a type of retirement plan that allows you to invest your money in several different ways. This can include buying and holding stocks, mutual funds, ETFs, or bonds. In addition, variable annuities are often recommended for people wanting to enjoy tax-deferred growth after other tax-advantaged options have been exhausted.

What are the key features of a variable annuity?

A key feature of variable annuity products is the ability for investors to switch their investments. Stocks, bonds, and other assets can be bought or sold without penalty or withdrawal fees (as long as they remain inside the annuity contract). This means you can take advantage of market opportunities without worrying about surrender fees or lock-in periods. In addition, variable annuities can be customized according to an investor’s risk tolerance and investment goals. A variable annuity may be the right choice if you’re looking for long-term stability or are interested in taking risks.

What risks are associated with variable annuities?

Variable annuities are a type of annuity that offers the potential to make lots of money over time. Still, there are also risks associated with the product. Here are some of the most common ones:

Possible loss of principal invested: Due to investment risk, variable annuities cannot guarantee your principal. Nor are variable annuities backed by any government entity such as the FDIC.

Commissions and fees: Every variable annuity contract comes with its own contractual language. Those with high commission and operating fees can undermine the growth potential of your investment.

Is it worth investing in a variable annuity?

Variable annuities are not suitable for everyone. If you’re unsure whether this product is right for you, then it’s best to speak with a professional. Before investing in a variable annuity, make sure you fully understand the contract, fees, and charges associated with it, as well as the benefits and drawbacks of the annuity type you’ve chosen. Before purchasing, you need to know how it works (withdrawals, surrender charges, death benefits), fees and commissions, survivorship rights, and surrender charges. Contact my office today to learn if a variable annuity might be right for you.