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With variable annuities, you invest a sum that s returned with interest in periodic payments.
Unlike traditional annuities, variable annuities earn and pay a fluctuating rate, based on investments you select.
Variable annuities can offer bigger returns, but their fees are high and they re subject to investment risks.
An annuity is a little like a self-funded pension: You pay an insurance company a lump sum now and, in exchange, the insurance company pays you back later, in steady installments with interest.
How much interest do they pay? That depends on the type of annuity. If it s a variable annuity, the interest rates are, well, variable: The size of your payouts is tied to the performance of the stock market, the bond market, or whatever sort of investments you picked to put your original lump sum in.