Discovering how does a Variable Annuity work, because life itself is a variable equation. Investing in a sound future during variable times.
Variable Annuities are designed to be long term investments. These are useful for retirement and long term financial goals. There are tax consequences and penalties if money is withdrawn early from Variable Annuities, to ensure that investors use them as long term investment vehicles. Many wonder how does a Variable Annuity work, and the answer lies within the cycles. There are two specific cycles for Variable Annuities, which are accumulation and payout.
There is an initial investment that you will place into the Variable Annuity, which is then allocated across different investments within the Annuity. Depending on your risk tolerance asset allocations will vary. For the more conservative investor you may have 80% bonds and 20% stocks, or reverse for the more aggressive investor. Depending on the performance of the funds that you are invested in your value will increase or decrease over time. Over the long term though, and with the right allocations, less profitable periods should not have as great an impact due to other funds offsetting the
lower performing ones. The accumulation cycle is one of the vital stages in discovering how does a Variable Annuity work, because it is during this cycle where the real money is made. There is ample opportunity to increase your investment with the right investment choices. Please try consulting with a Financial Adviser or visiting an Investing Firm’s website and reading their perspectus’ before making any fund decisions.
Payout is probably the investors’ favorite cycle of a Variable Annuity. In concluding how does a Variable Annuity work, the payout cycle is where the investor gets to reap the benefits of their wise investment decisions. They will recieve either a lump sum payment or specified payments over a period of time. These payments include the principal, investment income, and any gains that have accumulated over the life of the Annuity. You will have the option to select how much and for how long you would like to receive the payments from the annuity, either fixed or variable based on fund performance. Don’t forget though that taxes will be taken out from these distributions, so plan on that when calculating payment amounts.