Variable Annuities

Last updated: March 28, 2016

What is a Variable Annuity?

Variable annuities typically offer a range of investment or funding options. These options may include stocks, bonds, and money market instruments. They are called variable annuities because the rate can vary. The return on variable annuities can increase or decrease, or even lose money.

  • During the accumulation period of a variable annuity, the insurance company puts your premiums (less any applicable charges) into a separate account. You decide how the company will invest those premiums, depending on how much risk you want to take.

Your Principal And the Return You Earn Are Not Guaranteed

  • Variable annuities depend on the performance of the underlying investment options.

    • If the investment options you choose for your annuity perform well, they may exceed the inflation rate or fixed annuity returns.

    • If they don’t, you may lose not only prior earnings, but even some of your principal.

  • Many variable annuities offer some guaranteed benefits:

    • Such as guaranteed death benefits and guaranteed living benefits.

      • Guaranteed minimum living benefits include income benefits, accumulation benefits, and withdrawal benefits.

Some variable annuities offer, a fixed account option that guarantees both principal and interest, much like a fixed annuity.

  • This gives you the option of dividing your money among the low-risk fixed option and higher-risk vehicles, such as stocks, all under the umbrella of one annuity.

    • Many variable annuities have programs to help you decide where to invest your assets.

Variable annuities purchased with after-tax dollars allow you to transfer money from one account to another without triggering a taxable event.

  • In other words, if you transfer money to a different funding option within your variable annuity (say stocks to bonds), you won’t have to pay taxes on any earnings.

  • Tax-free switching lets you re-allocate money to suit changing market conditions and your changing investment goals.

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