Variable Annuities

What Is a Variable Annuity? Market Growth With a Retirement Income Edge

When it comes to retirement planning, everyone wants growth, income, and security—but how much risk are you willing to take?

A Variable Annuity offers the potential for market-based growth along with lifetime income options, making it an attractive solution for investors who want to grow their money while protecting it from longevity risk.

In this post, we’ll break down what a variable annuity is, how it works, and who it may be a good fit for.

What Is a Variable Annuity?

A Variable Annuity is a long-term investment product offered by insurance companies that:

Provides tax-deferred growth
Offers investment options (subaccounts) similar to mutual funds
Can turn into a guaranteed income stream in retirement
May offer optional living and death benefit riders

Unlike fixed or indexed annuities, a variable annuity allows you to invest in the market, which means both higher upside potential and higher risk.

How Does a Variable Annuity Work?

Here’s a basic overview:

You invest a lump sum or make regular payments to the annuity.
Your money is allocated among investment subaccounts—similar to mutual funds (stocks, bonds, balanced portfolios, etc.).
Your account value rises or falls based on market performance.
You can choose to receive guaranteed lifetime income, even if your investment balance goes down—if you’ve added a living benefit rider.

Key Benefits of Variable Annuities

Tax-Deferred Growth

Like an IRA or 401(k), you don’t pay taxes on gains until you start making withdrawals.

Market-Based Growth Potential

You can grow your retirement savings by investing in a variety of funds, tailored to your risk level.

Optional Income Riders

Add-on features (for a fee) can provide:

Guaranteed lifetime income
Minimum income benefits
Protection from market downturns in income payouts

Death Benefit Protection

Your beneficiaries are guaranteed at least the amount you invested (minus withdrawals)—and some riders may offer more.

Risks & Considerations

Investment risk: Your account value can go down with the market.
Fees: Variable annuities tend to have higher costs, including:
- Mortality & expense (M&E) fees
- Administrative fees
- Rider charges
- Investment management fees
Complexity: These products can be difficult to understand without guidance.
Surrender periods: Withdrawing early may result in penalties.

That’s why it’s critical to work with a licensed insurance professional to ensure the annuity aligns with your financial goals and risk tolerance.

Who Might Consider a Variable Annuity?

A Variable Annuity might be right for you if:

You’re comfortable with market risk
You want tax-deferred growth on investments
You’ve already maxed out other retirement accounts (like IRAs or 401(k)s)
You’re looking for lifetime income but want the opportunity for investment gains

You value having living benefit riders for income protection or death benefits

Variable vs. Other Annuities

Feature	Fixed Annuity	Indexed Annuity	Variable Annuity
Growth Type	Guaranteed interest	Market-linked (capped)	Market-based (no cap)
Principal Protection	Yes	Yes	No
Investment Control	None	Limited	Full (within subaccounts)
Risk Level	Low	Low to Moderate	Moderate to High
Lifetime Income Options	Yes	Yes	Yes