Variable Annuities: Unlimited Growth Potential 📈
Invest in the stock market within your annuity. Full market exposure with optional income guarantees. Higher risk, higher potential reward.
🌰 In a Nutshell
A variable annuity lets you invest your money in mutual fund-like subaccounts (stocks, bonds, etc.) inside the annuity. Your account value goes up and down with the market—no caps, no limits. You could earn 20% in a good year or lose 20% in a bad year.
Think of it like: A 401(k) wrapped in an insurance contract. You get market growth potential plus optional guaranteed lifetime income riders.
How Does a Variable Annuity Work?
Here's the simple breakdown:
You Deposit Money
You give the insurance company a lump sum or make regular payments.
You Choose Investment Options
Your money goes into subaccounts—like mutual funds. You pick from stocks, bonds, balanced funds, international funds, etc. You control the allocation.
Your Money Grows (or Shrinks) with the Market
If your investments gain 15%, your account grows 15%. If they drop 10%, your account drops 10%. Full market exposure—no caps, no floors.
You Can Add Guaranteed Income Riders
For an extra fee (usually 0.5%-1.5% per year), you can add a Guaranteed Lifetime Withdrawal Benefit (GLWB). This guarantees you can withdraw a set percentage each year for life—even if your account goes to zero.
The trade-off:
You get unlimited growth potential and control over your investments—but you also accept full market risk (unless you pay for income guarantees).
Typical Investment Subaccount Options
Stock Funds
Large-cap, small-cap, international, growth, value, sector-specific funds
Bond Funds
Government bonds, corporate bonds, high-yield bonds, international bonds
Balanced Funds
60/40 or 70/30 stock/bond mixes for moderate risk
Money Market
Safe, stable cash-like holdings for conservative investors
Understanding Guaranteed Income Riders (GLWB)
The biggest advantage of variable annuities is the option to add a Guaranteed Lifetime Withdrawal Benefit (GLWB):
How a GLWB Works:
The insurance company tracks a "benefit base" (often your initial deposit). This grows by a guaranteed rate (like 5% per year) or by your actual account performance—whichever is higher.
You can withdraw a set percentage of the benefit base each year (typically 4%-5%) for the rest of your life—even if your actual account value drops to zero.
Once you start withdrawals, they continue for life. If you live to 100, you keep receiving your guaranteed amount every year.
Example: You invest $200,000. Your benefit base grows at 5% guaranteed. In 10 years, your benefit base is $325,779—even if your actual account is only $180,000 due to market losses. You can withdraw 5% of $325,779 ($16,289/year) for life.
⚠️ Understanding Variable Annuity Fees
Variable annuities are more expensive than other annuity types. Here's what you typically pay:
Mortality & Expense (M&E) Fee
Insurance company's fee for death benefit guarantee and contract administration
Administrative Fees
Annual contract maintenance fee
Investment Management Fees
Fees for the underlying mutual fund subaccounts
Optional Riders (GLWB, etc.)
Fee for guaranteed lifetime withdrawal benefits
Pros & Cons of Variable Annuities
✅ Benefits
- ✓ Unlimited growth potential (no caps)
- ✓ Control your investment allocation
- ✓ Optional guaranteed lifetime income riders
- ✓ Tax-deferred growth
- ✓ Death benefit protection for beneficiaries
- ✓ Professional money management options
⚠️ Drawbacks
- • High fees (2%-3.5% annually)
- • Full market risk—can lose money
- • Complex products with fine print
- • Surrender penalties (typically 7-10 years)
- • Withdrawals taxed as ordinary income (not capital gains)
- • Often not worth it vs. low-cost index funds + separate insurance
Who Should Choose a Variable Annuity?
✓ You want unlimited market growth but also want guaranteed lifetime income protection
✓ You're comfortable with market risk and accept that your account can lose value
✓ You've maxed out 401(k) and IRA contributions and want additional tax-deferred growth
✓ The fees don't bother you because you value the income guarantees
⚠️ Consider Alternatives If:
You're primarily investing for growth and don't need guaranteed income. Low-cost index funds (0.1% fees) will likely outperform variable annuities (2-3% fees) over the long term. Buy separate term life insurance if you need death benefit protection.
Compare to Other Options
Compare Variable Annuity Options
See investment options, guaranteed income riders, and fee structures from top-rated carriers.
🔒 Free consultation. Understand all fees and guarantees before committing.