Opening a variable annuity is not all sweetness and roses, however. Generally speaking, it is unwise to choose a variable annuity over a fixed annuity unless you either have a lot of money to spare (and risk) or you are absolutely certain you know what you are doing when it comes to investing wisely. Even if you do, there are certain caveats to the process that are well worth contemplating before you put your money in. One thing to consider, of course, is the fees. A variable annuity usually comes with multiple fees, from mortality and expense charges, to underlying investment charges, to rider charges (should you have chosen any optional rider options), to standard administration fees. There are also surrender charges, and front-end loaded annuity fees.



Depending on the overall size of the annuity, these fees can add up to something quite formidable. Even the standard administration fee, depending on the size of the percentage at which it is charged, can cut down on your overall income considerably, so it is well to read all the fine print before signing anything.



At its most basic, a variable annuity insurance contract is an agreement between the customer and the insurance company. A variable annuity portfolio can be a good place to invest your money - but the process is filled with pitfalls. Even a mutual fund account with an annual tax could turn out to be a wiser move if you make a mistake choosing your annuity. It is certainly not an option one should choose if they have a limited income to start with, or if there is a simpler alternative to select.