What is a primary feature of variable annuities?

A primary feature of variable annuities is that they come with investment options that can lead to different payout amounts. This flexibility allows policyholders to invest their premiums in a variety of underlying funds, which can include stocks, bonds, or balanced funds. The performance of these investments directly influences the amount of income the annuity provides during its payout phase. Therefore, because the investment returns can fluctuate based on market performance, the total payouts can also vary, reflecting the investor’s choices and market dynamics.

This characteristic of variable annuities makes them appealing for individuals who are willing to take on some investment risk in exchange for the potential of higher returns, as compared to the guaranteed fixed interest rate options typically associated with other types of annuities. The dynamic element of variable annuities empowers investors to potentially tailor their retirement income based on their risk tolerance and market conditions.