Variable Annuity
An insurance contract that wraps mutual-fund-like ‘subaccounts’ in a tax-deferred shell.
Variable annuities promise tax-deferred growth and an optional lifetime income rider, but the total cost stack is typically the highest in personal finance: mortality and expense charges around 1.25%, subaccount fees around 0.75%, and rider fees of 0.5% to 1%, often 2.3% or more all-in. Surrender charges can run 7% to 10% in the early years and last 5 to 10 years. Withdrawals before 59 1/2 face a 10% IRS penalty. For most people, maxing out 401(k), IRA, and HSA, then taxable index funds, is dramatically more efficient than a variable annuity.
Inside Finlo
A 60-second lesson that puts this term in context, alongside the others, lives inside the Finlo app.