A variable annuity is an insurance contract which allocates your money in stock or bond portfolios. As with every annuity, during the accumulation phase, your account grows on a tax deferred basis.
When considering whether to invest in a variable annuity as part of your retirement plan, you should carefully study all of the provisions of your contract. Variable annuity contracts can be confusing. There are many moving parts which effect the underlying performance of your account. It is advisable to consult with an experienced insurance agent or broker before committing any money to a variable annuity.
With variable annuities, there is a risk that the value of your account may drop below the amount you originally invested. This is not the case with so-called fixed annuities.
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There are two phases in a variable annuity. The accumulation phase is the period during which your investment grows (hopefully). The payout phase begins when you decide that you would like to withdraw your principal and/or earnings from the account.
There are various charges you will have to pay when owning a variable annuity. These include surrender charges, mortality and expense charges, administrative fees, and underlying fund expenses. There may be other fees as well, depending on the type of contract you purchase. Some companies offer bonus features, but there may be higher fees as a result.
Each insurance company "manufactures" different bells and whistles in their contracts which you need to be aware of. Be sure to read the prospectus you receive from your agent and have all of your questions answered before purchasing this annuity.
VIA: CNN Money SOURCE: U.S. Securities and Exchange Commission
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