One of your investment options may be a
variable
annuity.
Or, if your plan provider is an insurance company,
the plan itself might be a variable annuity. With a variable annuity,
you allocate your contribution among the different funds (also
called separate accounts, subaccounts, or investment portfolios)
that the annuity offers. Your choices may include several
equity
funds,
a
fixed-income
fund,
and a
money
market fund.
Once you retire, you can convert your accumulated
account value into a stream of retirement income that will continue
as long as you live. If you choose a joint and survivor payment
plan, the income will last for two lifetimes: yours and your
beneficiary’s.
The income can be fixed, which means you’ll receive the
same amount in each payment. You can also choose variable income,
which means the amount you get changes from payment to payment
to reflect the return on the annuity’s
underlying
investments.
The promise of a steady stream of retirement income may make variable annuities seem like an appealing option. Just be sure to read the fine print before you decide to contribute to an annuity. The fees associated with variable annuities tend to be higher than those associated with other investments within your 401(k) portfolio.
