What is a Variable Annuity?
June 20, 2009 by Stephen Kersey
Filed under Finance
Variable annuities are investment vehicles that are purchased to provide the annuitant with a monetary fund that is generally used for retirement. As opposed to fixed annuities, which invest the money is low-risk government securities and other such investments, variable annuities provide the annuitant with a variety of investment options that may or may not grow the money of the annuitant.
You can purchase a variable annuity with either a lump sum payment or a series of periodic payments. Variable annuities are either immediate, which means you can start to withdraw and receive payments from the fund immediately, or deferred, which means you will start to receive the money at some future date. There are a variety of investment options from which you can choose, typically consisting of mutual funds that invest in stocks, bonds, money market instruments, or a combination of the three.
Variable annuities have death benefits, which means that if you die before the money has been paid to you from the annuity, your spouse, child, or other beneficiary will receive a certain amount of money, at least as much as you paid for the annuity. If your account is worth less than the guaranteed amount at the time of your death, your beneficiary will receive a bonus.
Withdrawals from a variable annuity made before the annuitant is 59 ½ are subject to a 10% penalty and taxation, while withdrawals made after that age are only subject to taxation. Payments from the variable annuity can either be annuitized, which means that you will receive money at regular intervals that you stipulate, or you can withdraw money from the fund at your discretion, keeping in mind the penalty for early withdrawal.
Variable Annuity (Image: Flickr)
