What Are Annuities? How Can You Use Them? by Marty .M. Thompson

People going or already in retirement are often concerned with finding ways to protect their savings while keeping a steady stream of retirement income. If invested wisely, annuities can be an effective solution to these concerns. What is an Annuity?
An annuity is essentially an insurance that acts like an investment designed for retirement. It is a legal contract between you and an insurance company that allows you to build up funds that can be received in deferred payments for over an extended period, thus creating a steady retirement income stream.
Several types of annuities exist, but the basic concept remains the same. Annuities have two main categories--immediate and deferred. Within each main category are sub-categories called fixed and variable annuities.
Fixed Annuity
A fixed annuity is an agreement between you and an insurance company that guarantees to pay back the capital you've invested together with interest on an agreed date. The safety factor in this option lies with the rating of the insurance company. It would be best to invest with a company with an "AA" rating or higher.
Fixed annuities may be tax-deferred. Payment of taxes on profits will only be required if you withdraw your investment at regular income tax rates. However, current tax would not be owed if ever you choose to reinvest.
Immediate Annuities
The immediate annuity is the most basic type of annuity. Basically, you invest your money in an insurance company that promises to pay you a certain amount of money for a specified period or for the remainder of your lifetime.
Take note that the insurance company keeps your principle once you've invested in an immediate annuity. It will not be given back to you at any given time, nor will it be given to a designated beneficiary. In return for giving up your rights to your money is an income stream paid off by the insurance company that could last until your rest of your lifetime. It is little wonder then that this insurance option is popular with retirees looking to supplement their other sources of retirement income.
Variable Annuities
Unlike fixed and immediate annuities, which gives you an idea ahead of time what the return income stream would be like, variable annuities could not predict the return as it is variable and unknown.
This is because the principle that you've invested in your variable account is invested in turn by the insurance company into various sub-accounts. Acting much like a mutual fund, these sub-accounts are managed and invested into stocks, bonds, and various market sectors by the company. You exercise control over the investment choices by moving the funds from one sub-account to another. If you do well in your choices, your capital would of course be enlarged. But if you don't, then it will consequently be less.
The Variable annuity gives you an opportunity to enlarge your investment, and eventually your income stream, through careful and tactical investment.
Consult a well-trained and experienced financial adviser when deciding on the best type of This is because the principle that you've invested in your variable account is invested in turn by the insurance company into various sub-accounts. Acting much like a mutual fund, these sub-accounts are managed and invested into stocks, bonds, and various market sectors by the company. You exercise control over the investment choices by moving the funds from one sub-account to another. If you do well in your choices, your capital would of course be enlarged. But if you don't, then it will consequently be less.
The Variable annuity gives you an opportunity to enlarge your investments and eventually your income stream, through careful and tactical investment.
Consult a well-trained and experienced financial adviser when deciding on the best type of annuity for you. These people should properly guide you with all the information you need to know about investing in an annuity for you. These people should properly guide you with all the information you need to know about investing in an annuity.
Marty M. Thompson
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