Understanding Annuities

Even in today’s uncertain economic environment, saving or putting money aside for the future is still a paramount necessity. Unfortunately, saving can become overwhelming for some people when deciding where to invest. A simple and generally uncomplicated investment option to consider is annuities. Why? Well annuities offer guarantees.

To futher help you understand Annuities- An annuity is a contract between an individual and an insurance company. The annuity is an investment or savings instrument, and an annuity pays to a designated person, also known as the annuitant. The annuitant receives a specified amount of income for a specified time, or a lump sum at a predetermined date of maturity.

Annuities typically offer tax-deferred growth of earnings and may include a death benefit. Annuities fall into one of three types – fixed, variable, and equity-indexed annuities. With a Fixed Annuity, the insurance company guarantees that you will earn a minimum rate of interest during the time your account is growing. At the end of that time, the annuitant receives guaranteed periodic payments. These payments can occur over a specified period, such as 20 years, or for an indefinite period, such as your lifetime.

With a Variable Annuity, you choose to invest your purchase payments from a number of investment options, which are typically mutual funds. The rate of return and the amount of payments you’ll receive will vary and depend on the performance of the investment options you selected.

If you choose an Equity-Indexed Annuity, this is a special type of annuity in which your investment return is based on an equity index. This allows your interest to change based on the index to which your equity is connected.

Annuities will not provide a tremendously high rate of 15% to 25% returns, nor do they claim to double your money in three years. Instead, investors are provided with a guaranteed interest floor, generally around 3%, and a guaranteed amount of income available at a certain time. For this reason, annuities serve well for retirement, education savings, or for seniors wanting a safe and guaranteed return. I hope this article helped on understanding annuities and stay tuned for more free investing tips and smart investment strategies.