Is a Variable Annuity Right for You?

A variable annuity* is a contract between you and an insurance company that offers the potential for providing a steady income during retirement or for a set period. You can purchase an annuity by making periodic payments over time or with one lump-sum payment.

The Mechanics

Variable annuities have an accumulation phase and an annuitization (payout) phase. During the accumulation phase, you make payments into an investment account. The money is invested in the options you’ve selected, typically mutual funds that hold stocks, bonds, money market instruments or a combination of these. The value of the annuity will depend on the performance of its underlying investments.

In the annuitization phase, you receive regular income payments based on the value of the annuity contract. You can choose to take payments for the rest of your life—or your and your spouse’s lives—or for a period that you set. Income and investment gains are tax deferred until you begin receiving payments, at which time, they’ll be taxed at your regular income tax rate.

Who Should Buy Them?

Variable annuities may be suitable for investors who are looking for capital appreciation and have a high tolerance for risk and a long investment time frame. They may not be appropriate for investors who are close to retirement or who’ll need the income relatively soon. Help protect your investment by purchasing annuities issued by insurance companies with strong financial ratings.

The Death Benefit

Variable annuities typically include a death benefit, which will be paid to the beneficiary you’ve named. Your beneficiary will owe taxes on the annuity’s appreciated value at your death.

Your financial professional can explain the requirements, fees, and suitability of these investments for your portfolio and answer your questions so you can make a well-informed decision.

*Annuity products are not FDIC-insured, and their guarantees are backed solely by the claims-paying ability of their issuing life insurance company. Distributions from annuities are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty.