After that, the rates are adjusted to reflect market conditions, but will never fall below a minimum guarantee amount. A variable annuity allows you to invest your money in a variety of professionally managed fund options such as common stock, bond and money market funds. With the variable annuity you participate directly in the investment performance of the underlying funds, and the value of a variable annuity will vary according to investment results. Since all earnings are automatically reinvested in the underlying funds without current taxation, money invested in a variable annuity over time can grow and compound faster than investments in a mutual fund outside of an annuity contract. In addition, variable annuities offer flexible payment schedules.
Some people prefer to pay in one lump sum.
Others prefer an ongoing investment program, such as monthly payments. Typically, the variable annuity payment schedule allows you to increase or decrease your payments, or stop them altogether and resume investing at a later date. Due to the tax consequences of early withdrawal and because investors bear the risk of the performance of underlying funds, variable annuities should be viewed as long term investments. There are withdrawal provisions that allow you to get at your money. Before choosing a variable annuity, be sure to consider the pros and cons listed below.