Understanding Your Variable Annuity
Like all annuities, variable annuities are insurance products that promise to pay you a stream of payments now or in the future. You purchase a variable annuity by making a single purchase, or a series of payments.
Variable annuities have two stages: an accumulation stage and a payout, or annuitization stage.
During the accumulation stage, you make payments to the policy. Your payment, minus fees, goes into a “sub-account” and is invested in different mutual fund options. Additionally, you may be able to allocate a portion of your payments to a fixed account, allowing for a guaranteed minimum return (i.e. 3%).
You can transfer money between different investment options, however, you may be charged a fee. If you choose to withdraw funds from the annuity in the early years of the accumulation period you may be charged a steep fee of anywhere from 2%-8%. Surrender fees typically last for the first 7 years of the insurance contract.
During the payout or annuitization stage of the annuity, you choose to “annuitize” your contract. In other words, you are exchanging your money for a stream of payments from the insurance company.
You can decide how long the payments last, and whether you will receive fixed payments, or variable payments that may increase or decrease based on the performance of mutual fund options.
Once you annuitize your contract, there is no turning back.
Variable annuities contain different add-on insurance features called “riders,” which are only available during the accumulation stage. Extra fees are associated with these features.
In another blog, we outline the optional insurance riders that are typically sold with variable annuities and how the high fees can be costly to your retirement plan
Have more questions on variable annuities? Contact us here, or schedule a call with Evan today.
"Fisher Investments." Fisher Investments, Personal Wealth Management, Your Financial Goals, Grow Your Wealth, Asset Types, Annuities, Variable Annuities. Accessed May 25, 2023. https://www.fisherinvestments.com/en-us/personal-wealth-management/your-financial-goals/grow-your-wealth/asset-types/annuities/variable-annuities.
