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What are its advantages?

Unlike their fixed counterparts, variable annuities are designed to pump up your savings by giving you a chance for long-term capital growth. They do this by allowing you to invest in anything from half a dozen to 20 or so stock or bond mutual-fund-like portfolios called subaccounts. As with fixed annuities, gains escape taxation until withdrawal.

Because of the growth potential, a variable annuity may be more likely than a fixed annuity to outpace inflation.