What is an Annuity ?

An annuity is a financial product that provides a stream of payments to an individual, typically in retirement. Annuities can be either immediate or deferred.

Immediate Annuities 

An immediate annuity begins making payments to the annuitant (the person who owns the annuity) shortly after the annuity is purchased, typically within one year. The payments can be made on a fixed or variable basis and can be received monthly, quarterly, or annually.

Deferred Annuities 

A deferred annuity, on the other hand, allows the annuitant to make contributions to the annuity over a period of time, and the payments are not received until a later date, typically in retirement. Deferred annuities can be either fixed or variable and can be used as a long-term savings or investment vehicle.

Annuities can be a useful financial tool for people who want to ensure that they have a steady stream of income in retirement. However, annuities can be complex financial products, and it is important to carefully consider the terms and fees before purchasing one.

Types of Annuities 

There are two main types of annuities: fixed and variable.

Fixed Annuities 

A fixed annuity pays a guaranteed rate of return, and the payments to the annuitant are based on this fixed rate. The insurer bears the investment risk, not the annuitant. Fixed annuities are often used as a safe and secure way to generate retirement income, but they may not provide as much potential growth as other types of investments.

Variable Annuities 

A variable annuity, on the other hand, allows the annuitant to choose how the contributions to the annuity are invested, typically among a range of investment options such as mutual funds. The payments to the annuitant are based on the performance of the underlying investments, and the annuitant bears the investment risk. Variable annuities can offer the potential for higher returns, but they also come with the possibility of losing money.

There are also several subtypes of annuities, including:

• Immediate annuities: These annuities begin making payments to the annuitant shortly after the annuity is purchased.
• Deferred annuities: These annuities allow the annuitant to make contributions to the annuity over time, and the payments are received at a later date, typically in retirement.
• Single premium annuities: These annuities are funded with a single lump sum payment, rather than ongoing contributions.
• Flexible premium annuities: These annuities allow the annuitant to make additional contributions to the annuity after the initial premium has been paid.