Annuity basics: Is a variable annuity right for you?
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
Some variable annuities allow free annual “surrender amounts” that you can withdraw if unexpected expenses arise. There are also qualifying events, like a terminal illness or becoming disabled, which may allow a withdrawal.
Decide if a variable annuity is right for you
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.
Guarantees are based upon the claims-paying ability of the issuing insurance company.
Withdrawals prior to age 59½ may be subject to a 10% IRS penalty tax.
This document is intended to be educational in nature and is not intended to be taken as a recommendation. Consult with your financial professional to discuss retirement planning.
Before investing in a variable annuity, investors should carefully consider the investment objectives, risks, charges and expenses of the contract and the underlying investment options. This and other information is contained in the free prospectus, and if available, the summary prospectus which can be obtained from your local representative. Please read the prospectus carefully before investing. Contract rider descriptions are not intended to cover all restrictions, conditions or limitations. Refer to rider for full details. Riders subject to state availability and may be subject to an additional charge.
Tax-qualified retirement arrangements, such as IRAs, SEPs and SIMPLE-IRAs are tax deferred. You derive no additional benefit from the tax-deferral feature of the annuity. Consequently, an annuity should be used to fund an IRA, or other tax-qualified retirement arrangement, to benefit from the annuity's features other than tax deferral. These features may include guaranteed lifetime income, death benefits without surrender charges, guaranteed caps on fees and the ability to transfer among investment options without sales or withdrawal charges.