Variable Annuity: An attractive supplement for retirement program

Variable annuities can be a great supplement for a retirement program. These are insurance contracts that aim to add-on to a retirement program. This acts as a medium for long-term savings and hence an efficient source of retirement income. Your money is invested in a separate account when you buy variable annuity. This account is made up of equity and/or fixed income funds and the value of the annuity that is finally received depends on how the fund performed. What type of fund you choose will depend on the amount of risk you are willing to take and the return you are looking for in return. Reasons why the variable annuity attracts as a retirement program Investing in variable annuity seems striking for the following features:

• You can transfer money among funds free of tax if your objective for insurance happens to change.
• You will have experienced money managers manage a wide range of variable as well as fixed funds.
• Your money will be tax deferred unless you withdraw it from the fund.
• You may choose between a lump sum and a monthly payment when selecting a payout choice upon retirement.
• There is a guaranteed death benefit offered by the insurance company. This means that any beneficiary will receive at least the original purchase price and not less than that.

Phases in Variable annuity There are typically 2 phases in variable annuity: 1. Accumulation phase – This phase continues until the maturity of the contract. 2. Payout phase – This phase begins upon maturity of the contract. As an annuitant you will receive monthly payments that may be fixed for your lifetime. You will also be given a choice of payment options which means you may receive any one of the following –

• Fixed payments every month
• Variable payments every month
• A combination of both payments

The pay out phase continues only till the annuitant lives or until the end of a specified time period. This depends on the payment option that you have selected. Since profits from these annuities vary upon their performance every month, you may not receive a fixed amount each month. Such annuities may be subject to various fees and charges. Before entering into such a contract, read through the documents and understand the contract thoroughly before signing.