Although annuities have been around for approximately 350 years, most of that time annuities have been the exclusive province of the wealthy. In the past 15 years or so, because of the financial benefits of annuities, they have seen tremendous growth and are being purchased more and more by ordinary citizens. An annuity is a savings account provided by an insurance company. They fall into 3 categories. Variable, Immediate, and Deferred.
These annuities are investments and carry risk. Usually, they are invested in security vehicles such as stocks, bonds, and mutual funds. Since it is a security, and consequently carry risk, it is also accompanied with a prospectus. Because the holder of this product assumes the risk, it is rarely recommended for those individuals who seek safety of their retirement funds. You can lose money with variable annuities.
This is product that provides guaranteed payments for the remainder of your life. You give the insurance company a lump sum of money, and the insurance company calculates how much they are willing to provide to you in guaranteed payments. The payments you will receive is based on your age and the amount of premium you’ve given to the insurance company. It is possible to increase your payments by taking the money for a period shorter than expected lifetime.
These annuity products have a variety of options. For example, you can use them for pure savings growth, or as a vehicle to enhance the death benefit to heirs, or use it as future guaranteed income. Tax deferred growth enable growth without being taxed until you withdrawal funds. You cannot ever lose your money with a deferred annuity and due to that fact and other benefits like lifetime guaranteed payments, inheritable money for heirs, and access for lump sum withdrawals, they are usually highly recommended for most people seeking an annuity.