In the American world today, there is an increased concern over retirement plans. The reason for this is not far fetched. This is chiefly as a result of the much flexibility that is experienced in pensions, gratuity and the instability of the stock market. On the same issue, some insurance companies have also not kept their promise in taking care of their numerous clients’ retirement needs.

As a means of achieving a secured retirement plans, many of these folks have turned to variable annuities as part of their retirement plans and investment plans of many Americans. But before you delve into investing in variable annuities, it is proper that you know the basics of and the successful tips involve in investing in variable annuities. You can do this by asking your insurance agent, broker, financial planner, or other financial professional lots of questions about whether a variable annuity is right for you.

In a nutshell, a variable annuity is a contract between a person and an insurance company, under which the insurer agrees to make periodic payments to you, beginning either immediately or at some future date. You can purchase a variable annuity contract by making either a single purchase or series of purchase payments.

A variable annuity offers ample variety of investment options. The value of your investment as a variable annuity owner will vary depending on the performance of the investment options you choose. The investment options for a variable annuity are typically mutual funds that invest in stocks, bonds, money market instruments, or some combination of the three.
Although variable annuities are typically invested in mutual funds, variable annuities differ from mutual funds in several important ways.

Variable annuities let you receive periodic payments for the rest of your life or may be the life of your spouse or any other person you designate. This particular feature offers protection against the possibility that, after you retire, you will outlive your assets.

It also has a death benefit. Here, if you die before the insurer has started making payments to you, your beneficiary is guaranteed to receive a specified amount-typically at least the amount of your purchase payments. Your beneficiary will get a benefit from this feature if, at the time of your death, your account value is less than the guaranteed amount.

Variable annuities are also tax-deferred. This feature means that you pay no taxes on the income and investment gains from your annuity until you withdraw your money. You may also transfer your money from one investment option to another within a variable annuity without paying tax at the time of the transfer. When you withdrawal your money out of a variable annuity, however, you will be taxed on the earnings at ordinary income tax rates rather than lower capital gains rates. In all, the benefits of a tax deferral will be more important than the costs of a variable annuity only if you hold it as a long term investment to meet retirement and other long-range goals.
Variable annuities have two phases: the accumulation phase, when you make purchase payments, which can allocate to a number of investments options and the pay out phase, when you receive your purchase payments from other plus investment income and gains as a lump-sum payment, or you may choose to receive them as a stream of payments at regular intervals, may be monthly.