Retirement, Investments, & Insurance for Individuals Build your knowledge Is a variable annuity right for you?

Is a variable annuity right for you?

If retirement is still a few years (or even a few decades) off, a variable annuity could offer a great opportunity to potentially grow your nest egg.

A woman who has learned about variable annuities and if they fit into her retirement income plan.
3 min read |

Making sure you have a diverse financial strategy—and guaranteed income—can help set you up for a secure future.

Whether retirement is a few years or a few decades off, a variable annuity may offer a great opportunity to potentially grow your nest egg.

Take full advantage of market growth potential

A variable annuity is an insurance contract you purchase as part of a long-term investment strategy. It can provide more income growth potential than other types of annuities. Here’s how it works.

You purchase a variable annuity with savings you already have, either in a one-time lump sum or a series of payments (premiums).

You decide how your money is invested. Typically there are a variety of investment options to choose from, so you can build the right strategy to meet your needs.

The value of your funds will fluctuate based on market performance, which means you can experience both growth and loss.

Your investments (and earnings) grow tax-deferred until you start making withdrawals.

A variable annuity’s investment options are called subaccounts, which invest in stock and bond funds. You can move your money from one subaccount to another without withdrawal or tax penalties, giving you flexibility to respond to market conditions.

Guarantee your income in retirement

Variable annuities often offer optional riders, like living benefit riders. These protect you from market risk by guaranteeing future income even if your investment choices perform poorly. Some riders also reward you with an annual bonus for each year you don’t withdraw money. This is added to your withdrawal benefit base. The higher your benefit base, the larger your guaranteed lifetime income payments will be.

Access your money

Variable annuities offer you access to your money, but because they’re long-term investments there will be fees for accessing money in the short term. These are called surrender charges, and typically apply for the first 5-8 years of your contract.

Still, most variable annuities offer a free withdrawal amount each year (usually 10-15% of the current account value), and full access to funds once the surrender charge period has ended. There are also qualifying events, like a terminal illness or becoming disabled, which may allow a penalty-free withdrawal.

Consider a variable annuity if you want to

  • Maximize future guaranteed income potential by taking advantage of potential market growth. This may also help you keep pace with inflation.
  • Potentially grow your money long-term. The earlier you invest in a variable annuity, the more opportunity you’ll have for growth. It’s another way to diversify your retirement investment strategy and grow your money tax deferred. It could be a good option if you’ve maxed out your IRA contributions.
  • Enjoy tax-deferred growth. You don’t pay taxes on your investments or earnings until you make a withdrawal or start receiving income payments.
  • Provide for your loved ones when you’re gone. Variable annuities generally include death benefit protection. Your beneficiary may receive unused funds when you die, or you can choose to provide guaranteed income payments for their lifetime, too.