Variable Annuities

In an variable annuity, In a variable annuity, you can choose to invest your purchase payments in a range of investment options (sub-accounts), which are typically mutual funds. The value of your account in a variable annuity will vary; depending on the performance of the investment options you have chosen. Variable annuities traditionally have annual fees ranging from 1-4% that are deducted from your account value, regardless of performance.


Your principal can be invested in the market and at risk for loss, though it is possible to achieve higher returns than other annuities when the market is up.

Pros of Variable Annuities

  • Typically higher opportunity for growth
  • Optional, guaranteed lifetime income
  • Tax-deferred growth
  • Full accumulation at death with optional rider
  • Probate avoidance

Cons of Variable Annuities

  • Money is at risk of loss due to being invested in the market
  • Typically has the highest fees of all annuities
  • Limited annual liquidity, typically 10%
  • Early withdrawal penalties
  • Depending on market volatility, principal and growth may not be available at term’s end in a lump sum withdrawal
  • Prospectus is typically 90-500+ pages (very complex)

Variable Annuities Are Best For:

  • Investors that want to continue to invest in the market, regardless of risk
  • People that have maxed out alternative tax-deferred opportunities
  • Those who are interested in passing on elevated death benefits to beneficiaries (depending on riders selected)
  • Those who are looking for diversification from owning just pure equities