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A variable annuity is a tax-deferred retirement vehicle that can increase or decrease in value, depending on how financial markets perform. A variable annuity is also an insurance product, so it provides many important features such as a death benefit, lifetime income, and optional living benefits.
You invest the funds in your variable annuity in one or more funds, most of which are mutual funds that focus on specific areas of the market. Because of the volatility any investment can experience, the value of your account can rise and fall with the market. You may lose money, but you might also earn quite a bit.
Payout options are often paid through ACH transfers. Methods for taking annuity payouts include the annuitization method, the systematic withdrawal schedule, and the lump-sum payment. Gender and age are the two most common factors used to determine payments.
The most popular type of variable annuity is likely a deferred annuity. Often used for retirement planning purposes, it is meant to provide a regular (monthly, quarterly, or annual) income stream, starting at some point in the future. There are also immediate annuities, which begin paying income right away.
Generally, a variable annuity is issued with a deferred payout structure. Essentially, this means the buyer must wait a specified number of years before receiving any payments. The holding period, which is known as the accumulation period, is designed to give the upfront investment time grow.
Ways to cash out an annuity include withdrawal, loan, return of premium, surrender and with a crisis waiver. Cashing out an annuity has pros ? access to immediate cash and potential tax advantages ? but also cons including surrender charges, taxes, penalties and loss of future income stream.