Variable annuities are a type of investment product that offers individuals the opportunity to receive a stream of income during retirement. They are characterized by several key features and considerations that individuals should be aware of before investing in them. Here are some important aspects to consider:
1. Investment Options: Variable annuities offer a range of investment options, typically including mutual funds that invest in stocks, bonds, and other securities. The performance of these investments will directly impact the value of the annuity.
2. Tax Deferral: One of the primary advantages of variable annuities is the ability to defer taxes on any investment gains until withdrawals are made. This can provide a significant benefit for long-term investors.
3. Fees and Expenses: Variable annuities often come with various fees and expenses, including mortality and expense risk charges, administrative fees, and underlying fund expenses. It's important to carefully review and understand these costs before investing.
4. Guarantees: Some variable annuities offer optional features, such as guaranteed minimum income benefits or death benefits, which can provide a level of protection against market downturns.
5. Risks: It's crucial to understand that variable annuities carry investment risk, as the value of the annuity can fluctuate based on the performance of the underlying investments. Additionally, surrender charges may apply if the annuity is surrendered early.
6. Surrender Period: Variable annuities often have a surrender period during which withdrawals may be subject to surrender charges. Understanding the terms of the surrender period is essential.
When considering variable annuities, individuals should carefully evaluate their investment goals, risk tolerance, and overall financial situation to determine if this investment product aligns with their long-term financial objectives.