Annuities have become a very popular retirement investment vehicle. Even so, there is a lot of confusion regarding annuities. Although there is some complexity to understanding the various options available to annuity purchasers (fixed, variable, indexed, etc.), the basics are fairly straightforward.
An annuity is an insurance product that pays out income, and can be used as part of a retirement strategy. Annuities are a popular choice for investors who want to receive a steady income stream in retirement.
Here’s how an annuity works: you make an investment in the annuity, and it then makes payments to you on a future date or series of dates. The income you receive from an annuity can be doled out monthly, quarterly, annually or even in a lump sum payment.
The size of your payments is determined by a variety of factors, including the length of your payment period.
You can opt to receive payments for the rest of your life, or for a set number of years. How much you receive depends on whether you opt for a guaranteed payout (fixed annuity) or a payout stream determined by the performance of your annuity’s underlying investments (variable annuity).
When making any investment decision be prepared and ask questions. To name just a few…….How long will payments be made? What are the tax implications? What is my return on the money I put into the annuity? Is it fixed or variable? What are the death benefits?
Individuals have different tolerances to risk, investment horizons, business and family situations, portfolio objectives, etc. The sale of any financial product should involve a careful analysis of the suitability of the product for a given individual.
As always talk to an advisor and ask questions.