With variable annuities, lots of things can vary, or change: how your contributions are invested, the rate of return that you earn on the separate account funds that you select, and the amount of income you receive if you annuitize. What remains constant with all annuities, fixed or variable, is the opportunity to select guaranteed lifetime income.
CREATING A PORTFOLIO
MAKING THE INVESTMENT
Each time you add money, you buy a specific number of accumulation units, or shares, based on the unit value of the separate account fund you're putting money into. The accumulation unit value is the total value of the separate account fund divided by the number of existing accumulation units.
A BRIEF HISTORY
Variable annuities were introduced in 1952. Their history, like that of mutual funds and self-directed pension and profit-sharing plans, is directly related to the increasing responsibility individuals have for making their retirement financially secure.
When you add money to your variable annuity either in a lump sum or as incremental purchases during an accumulation period, you must decide how your assets are going to be allocated among the separate account funds you have chosen.
With many variable annuities, you can allocate a specific percentage of your contributions to each of your separate account funds at the time you buy. For example, if you invest $40,000 and have selected four funds, you might buy $10,000 worth of accumulation units in each of the funds. Or, if you invest $400 a month, you would allocate $100 into each of the funds.
No one mix suits every investor, though many investors emphasize stock funds, since they have historically provided the strongest returns over the long term, and thus the greatest opportunity for growth, despite their volatility.