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Annuity Annex was founded to provide a simple and easy way to understand the many options, pros & cons and products available in the world of annuities. Our team of professionals are here to educate and help you find a plan that best suits your needs and goals.
What are Annuities?
An annuity is a contract between you and an insurance company that requires the insurer to make payments to you, either immediately or in the future. ... Similarly, your payout may come either as one
lump-sum payment or as a series of payments over time.
Why Do People Buy Annuities?1
People typically buy annuities to help manage their income in retirement. Defined benefit pensions and Social Security are two examples of lifetime guaranteed annuities that pay retirees a steady cash flow until they pass.2 Annuities provide three things:
- Periodic payments for a specific amount of time. This may be for the rest of your life, or the life of your spouse or another person.
- Death benefits. If you die before you start receiving payments, the person you name as your beneficiary receives a specific payment.
- Tax-deferred growth. You pay no taxes on the income and investment gains from your annuity until you withdraw the money.
What Kinds Of Annuities Are There?
There are three basic types of annuities, fixed, variable and indexed. Here is how they work:
- Fixed annuity. The insurance company promises you a minimum rate of interest and a fixed amount of periodic payments. Fixed annuities are regulated by state insurance commissioners.
- Indexed annuity. This annuity combines features of securities and insurance products. The insurance company credits you with a return that is based on a stock market index, such as the Standard & Poor’s 500 Index. Indexed annuities are regulated by state insurance commissioners.
- Variable annuity. The insurance company allows you to direct your annuity payments to different investment options, usually mutual funds. Your payout will vary depending on how much you put in, the rate of return on your investments, and expenses. The SEC regulates variable annuities.
How to Understand Annuities
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Source: 1) https://www.investor.gov/introduction-investing/basics/investment-products/annuities 2) https://www.investopedia.com/terms/a/annuity.as