Variable annuities
are long-term investments by design. To
discourage you from making withdrawals early on, issuers tend to charge
high
surrender fees
for an initial period, generally five to seven years but sometimes longer.
These
surrender fees can be steep, typically around 7% of your withdrawal in
the first year. Most contracts reduce the surrender fee each year until
it reaches zero, but some include what they call rolling surrender
fees, which initiate a new surrender fee period as you make additional
premium payments into the annuity.
If
there's no chance you'll need the money or want to move it within the
surrender fee period, then these fees may not bother you. However, it
also means that if your variable annuity isn't performing as well as
you hoped, or if you find an investment that better fits your needs,
you won't be able to move your money for a few years without incurring
a big fee.
Surrender fees
are also a good reason to be wary of putting your money into a variable
annuity if you don't have other more easily liquidated investments to
rely on. You probably won't want to have all your money locked in a
variable annuity if you have emergency expenses.
