Annuities are financial instruments that are sold by insurance companies and can be a great asset in your financial toolbox. They can be a great supplement for your retirement, for example. The premise behind annuities is that you pay now for an annuity that will give you future payments – generally for the rest of your life. However, there are different types of annuities for different purposes.
A fixed annuity will guarantee the buyer specific payments at some point as a stream of income. You can purchase a fixed immediate annuity which will start payments right away. You can also purchase fixed deferred annuities that will start in the future.
These types of investments are generally considered predictable and safe and are appropriate for people who may be risk-averse. However, they don’t deliver much in the way of returns. Fixed annuities may run the risk of losing purchase power over the years as a result of inflation. It’s important to note that you are able to purchase annuities that will account for inflation, and this may be a great option if you are uneasy with a high amount of risk.
A variable annuity has the ability to return much higher investments, but it is a little riskier. With variable annuities, funds will be invested in a mutual fund portfolio chosen by the buyer. If the funds perform well, the account will grow and a higher payout may be received when the time comes. This also means that if the funds don’t perform well, you may end up losing some money.
Like fixed annuities, variable annuities can also be immediate or deferred. Variable annuities tend to be best for people who are more experienced when it comes to investing.
No matter what you choose, an annuity is a great way to guarantee that you will have a stream of income for as long as you live.