Deciding whether to invest in an annuity isn’t an easy task, but considering it as an option is important for your retirement future. Securing a comfortable future beyond your working years is possible with a bit of research and insight about what’s available to you.

Being that annuities are tax-deferred, offer long-term growth of your money, and provide an income for life, they’re a popular investment and savings option among elderly people. With that said, here’s six things to keep in mind when considering an annuity.

What’s a Variable Annuity?

Of all the different types of annuities, the variable annuity is the most useful. A variable annuity is a contract between the annuity owner (you) and the life insurance company.

For your investment, the insurance company agrees to disperse either a regular stream of income over time or a lump-sum payout in the future (once you retire). Your investment goes into a securities portfolio and a fixed interest account, earning capital appreciation and/or interest.

How Do Variable Annuities Work?

There are two stages in a variable annuity: the accumulation period and the payout period. As soon as you’ve invested money in your annuity, you’ve started the accumulation period. Either can either make one large payment in a single premium annuity or can make several payments in a flexible premium annuity.

Either way, you money begins to accumulate tax-deferred earnings. Your principal and interest will later be paid out to you in the form of a regular income or a lump-sum payment.

Why is it Called a Variable Annuity?

Variable means that the market value and/or income generated by the securities isn’t fixed; you return may vary because of the interest rates and other market factors. Important features of a variable annuity include separate accounts, diversification, and switching privileges.

In separation accounts, the variable portfolios in your annuity are established and maintained apart from the insurance company’s general investment portfolio in a separate account.

How your investment performs is not predicated on the insurance company’s investment portfolio. Your variable portfolio’s performance will determine your results.

In diversification, your risk spreads between many different securities, even if you only invested in a single portfolio. This reduces the risk of losing a substantial amount of money because of one security.

Also, most variable annuities allow you to reallocate your money without a charge as long as you don’t do it too often. This is known as the switching privilege.

What Happens if You Access Your Money Before Retirement?

Although you can withdrawal money from your investment, it does come at a price. The IRS may impose a 10 percent penalty tax if you’re younger than 59 years old and take out an excess amount from your annuity. You may also come across a “market value adjustment” if you take out money from a fixed interest option before the end of the guaranteed interest rate period.

Make sure you’re fully aware of the taxes imposed on you for withdrawals because the penalties can vary. If you’re looking for a comprehensive resource for this type of financial product, Annuity Assist by Fisher Investments will help you check your annuity and sift through the details.

What Does Annuitize Mean?

If you choose to receive payouts at regular intervals over time, then you’ve chosen to annuitize. Many insurance companies offer several annuity options based on how long you want the stream of income to last. The amount of money that your payout will offer depends on your age, the annuity option you selected, the number of annuity units you have, and your security portfolio’s performance. Of course, another options is to receive your money in a lump-sum.

What You Should Consider When Selecting a Variable Annuity?

Although not a guarantee of future results, the historical performances of your portfolios will tell you how well the annuity’s investment manager has done in both adverse and positive markets.

This is especially important for the growth potential of your investments as opposed to the short-term figures.

Also, you should carefully review every fee and charge associated with your annuity. Some annuities have a surrender charges that decreases the longer you maintain your investment. Others have a high charge for a certain period of time.

Remember to look at all annual administration fees and asset charges that you may accrue. It’s important for you to understand the possible fees associated with your annuity, so remember to follow-up.

There are a lot of things you must consider before deciding on an annuity. Use the information provided to propel you to do more research on them; your future may depend on it.

Post contributed by Author Jane,  a freelance writer who loves to write about anything from tech to mommy stuff. She is featured in many blogs as a guest writer, and can write with authority on any niche or subject.

This post was submitted by a contributor. Check out our Contributor page for details about how you can share your ideas on starting a business, productivity or life hacks with our audience.


  1. Before deciding for or against annuities in general, be sure to look further than just variable annuities….there are many different types which are uniquely designed to address specific risks that many retirees face (life longevity, market turbulence, inflation, etc.). The more popular ones include Fixed Index Annuities, SPIAs, MYGAs, and Longevity Annuities.

Comments are closed.