Variable Annuity

This is a type of insurance product generally sold to those who are preparing for retirement or are in retirement. An investor buys an annuity at a set price and then holds it without taking payments (though she can make additional investments) during a period known as the “accumulation stage.” Money is invested in open-ended mutual funds offered within the annuity and grows on a tax-deferred basis. After the accumulation stage, the holder of the variable annuity is able to withdraw money from the annuity or to “annuitize” it, in which case the insurance company sends the investor monthly income for life. For this reason VAs (as they’re sometimes called) are generally used for those seeking retirement income. The size and scope of these annuitized payments depend on the performance of the portfolio in which the variable annuity is invested, as well as the age of the investor and the current level of interest rates. (See also: Annuity)

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