Final answer:
Variable annuities are investment products designed for retirement savings that can grow tax-deferred and provide retirement income. They offer a balance of risk and potential return, and may be included in 401(k) plans or other retirement accounts provided by employers.
Step-by-step explanation:
Variable annuities were developed primarily to provide individuals with a flexible investment option that can grow tax-deferred and eventually offer a stream of income during retirement. Unlike fixed annuities which provide a guaranteed payout, variable annuities allow the annuity owner to invest in various securities like stocks and bonds, with the possibility of a higher rate of return. This means that the income from a variable annuity can vary depending on the performance of the investments chosen.
Employees may have various private market options for saving for old age, including 401(k)s and IRAs, which have tax advantages. These investment vehicles can include variable annuities as part of their portfolio. The aim of these options is to provide sufficient income in retirement and can be offered by employers as part of a benefits package, complementing other retirement savings options such as stocks, bonds, and savings accounts.
Variable annuities are typically considered alongside other retirement savings strategies, such as stocks that may pay dividends or bonds that generate interest. They present a balance between risk and potential return, offering a compromise for those looking for the opportunity for growth without the fully fixed returns of a pension or traditional annuity.