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Before you put money into a variable annuity, be sure you've educated yourself with regard to the limitations and restrictions that will impact your investment.

Insurance Company

Be sure that the company issuing the annuity has a solid financial underpinning—i.e., it will be able to meet its obligations. You want to be sure the company will stand behind your investment over the long term. Check ratings of insurers from services such as AM Best, Moody's, Standard & Poor's, Duff & Phelps, and Weiss Research.

Fees

Variable annuities come with several charges that you will be paying—these charges will reduce your return and thus the value of your account. Some common charges include:

• Surrender charge—if you withdraw money within a certain period after purchase (typically six to eight years), the insurer may impose a "surrender" charge. This fee, which is a percentage of your investment, usually decreases each year until it disappears.
• Administrative and mortality risk fees—the insurer deducts charges to cover its record-keeping costs and the risks it assumes. This can be in the form of an account maintenance fee that you pay annually and/or a percentage of your account.
• Fund expenses—the funds in which you can invest also will charge investment management fees that come out of your account value.
• Other fees—there may also be fees for special features that the issuer offers, such as a stepped-up death benefit or long-term care insurance (see below for details on these features).

So in total, it is not uncommon for variable annuities to come with annual fees. You should pay attention to the total fees you will be paying to make sure that they are reasonable and that you are comfortable with the overall fee structure. However, don't focus on any one fee, but rather, evaluate the total picture, including potential performance.

Also, keep in mind that, subject to certain exceptions including death, you will be assessed a 10% penalty for withdrawal of earnings prior to age 59½. Remember, annuities are meant to be long-term investments.