What is a Variable Annuity?
A variable annuity is a type of investment product that combines features of both insurance and investment. It is typically used as a retirement savings vehicle, allowing investors to accumulate capital on a tax-deferred basis. The 'variable' aspect comes from the investment choices that policyholders can make, which typically include a range of mutual funds and portfolios.
Variable annuities provide a degree of flexibility, adapting to the market performance of the selected investment options. This means the value of the annuity can fluctuate based on the performance of these investments. Additionally, they often come with a variety of riders, like guaranteed income or death benefit options, which can appeal to those looking for income streams during retirement.
Although they offer growth potential, it's important to note that variable annuities also carry risks. Market volatility can lead to fluctuating values, and they may come with higher fees compared to other investment vehicles. Understanding the balance of risk and reward is essential for retirees considering this option for Social Security optimization and long-term retirement investing strategies.
In summary, variable annuities can be a beneficial tool in your finance portfolio, especially when planning for retirement, but thorough research and professional advice should be sought to ensure they are suitable for your individual circumstances.