Like other types of annuities, variable annuities require an investment made either in a single large payment or premium installments made over time. All annuities gain interest, but how much interest depends on the type of annuity you choose. As mentioned before, fixed annuities have a set interest rate while fixed index annuities have slightly more calculated risk with access to the stock market. However, with a variable annuity, you have greater access to the stock market and can participate more directly with investment portfolios.
Variable annuities became popular when they were introduced in the 1950’s. As stocks rose and the economy thrived, more individuals wanted to participate and have a chance to access the market. With the possibility of higher returns on their investments, many gladly accept the risk hoping for larger payouts when the time comes.
Naturally, anything which offers the chance of potential gains also bears the risk of potential losses. This is a complicated annuity type and requires careful consideration. Your initial investment could lose value which would impact the funds available during your payout phase. There are also typically fees to consider with a variable annuity, not to mention the penalties for any early withdrawals. Withdrawals are extremely limited for variable annuities so they are best as a long term investment.
Like most annuity types, this is a way to protect your funds from creditors and allow for potential gains. During the accumulation phase your investments cannot be taxed so the money can grow tax-deferred. If you enjoy participating in the stock market and watching your investments perform, this may be a good option for you.
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To go over the risks involved and get a better idea of the requirements for a variable annuity, contact one of our trusted team members at American Family Solutions. We will help you go over your annuity options to help you find the right one for your specific situation.