Which statement best describes a variable annuity?

A variable annuity is designed to provide returns that fluctuate based on the performance of underlying investment options chosen by the policyholder, such as stocks, bonds, or mutual funds. This means that the potential returns can vary widely, offering the possibility for higher returns based on the market's performance but also carrying the risk of lower returns or even losses. The investment performance directly affects the value of the annuity and the payouts that the annuitant may receive, which is fundamentally what distinguishes variable annuities from fixed annuities that do provide guaranteed returns.

This characteristic of being linked to investment performance is key in helping clients achieve growth in their investments, especially over long periods. It is essential for individuals who are comfortable with market fluctuations and are looking for a retirement income solution that might provide greater returns than fixed options.

The other statements do not accurately describe characteristics of variable annuities. For instance, the concept of guarantees is not applicable, as these annuities are inherently tied to risks associated with the chosen investments. Similarly, categorizing them as exclusive to low-risk investors overlooks the suitability for individuals who may be risk-tolerant and seek growth-oriented solutions.