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What are Annuities used For?

An annuity is one of the retirement investment options that many Americans choose today. It is a safe way of receiving decent investment returns on periodic basis.

Basic advantages

Mostly, the return of any investment is subjected to taxes. However, the best thing about retirement annuities is that they are tax deferred. You can receive monthly payments on continuous basis for the rest of your life. With the help of these annuities, even your spouse and family can benefit your after your death.

Understanding the terms

There are many types of annuities available these days. Some of them come with many options and conditions regarding the length of term and the schedule of payment. Before you sign up for anything like this, it is important that you understand what exactly is available to you and what does it come with.

Basically there are two main types commonly chosen by retirees: fixed annuity and variable annuity. Your specific financial situation and family circumstances determine which type of annuity can suite you the best. Some annuities involve the risk factor while others are more safe and reliable.

Fixed annuity

Like mentioned above, this is the safest option you have available. You get the minimum interest rate and protection of the principal amount. Fixed annuity is more like bank CD’s; however it is more focused on retirement plans and higher liquidity. You should expect the interest rate ranging between 3-10%. If you have already reached the retirement age, perhaps this is the ideal annuity for you.

Variable annuity

Variable annuities are rather more flexible than fixed and can get you higher return. However, they involve huge risks. You can purchase this type of annuity with a lump sum to be invested over time. You can invest in mutual funds and stocks and that will affect the monthly payments you get.



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