What Are Variable Annuities, And Are They Right For Me?

A variable annuity is an insurance contract, and that contract serves as an investment account. This account can grow on a tax-deferred basis, and includes certain insurance features such as the ability to turn your account into a stream of periodic payments.

The value of your contract will vary depending on the performance of the investment options you choose. The investment options available for a variable annuity are typically mutual funds that invest in stocks, bonds, money market instruments, or a combination of the three.

At the end of the day, variable annuities are really a value judgment. Remember, only you can be the judge of what constitutes value to you, and if that value helps you get closer to your personal goals.

Do you value the guarantees and predictable income that annuities can provide? Are the fees worth the price of mitigating the risk fluctuating markets can have on your financial security in retirement?

The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Variable annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits.

Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contact. Withdrawals and income payments are taxed as ordinary income. If you withdraw funds prior to age 59½, a 10% federal income tax penalty may apply (unless an exception applies). Annuities are not guaranteed by the FDIC or any other government agency.

Variable annuities are sold by prospectus which contains detailed information about investment objectives and risks, as well as charges and expenses. You are encouraged to read the prospectus carefully before you invest or send money to buy a variable annuity contract. The prospectus is available from the insurance company or from your financial professional. Variable annuity subaccounts will fluctuate in value based on market conditions, and may be worth more or less than the original amount invested if the annuity is surrendered.