Annuities of late are very popular investment options. This is especially true in regard to retirees and those who are preparing to retire.
Annuities are arrangements for annuitants (the ones who take them up) to make payments to whatever institution is offering the annuities (insurance companies mostly), that will in turn invest that money and will guarantee the annuitant a lifetime income.
The great beauty of an annuity, is that it’s assured to provide people who have them, with a steady stream of income that will last them for their lifetime. In many cases, as with ‘fixed-return’ annuities, the annuitants won’t even need to bother with the performance these investments make, no matter what purchase that annuity gets put into.
This is very attractive for those in retirement, who want to avoid the hassle of managing investments. With an annuity, all you do is cash your regular check. Whatever insurance company or financial institution offers the annuities, will absorb a part, or maybe all, of the risks of the investments for you. This is very stress relieving, because all of us know that investments come with some element of risk.
You can structure annuities in a way that allows for, in the case of the death of the annuitant, their survivors to receive the benefits. In a way it’s like life insurance. When married couples are involved, an annuity can be tailor made so if a spouse dies, the other one will continue to draw a steady income from their annuity. This form of annuity is known as a common ‘joint’ annuity.
Annuity premiums are paid either in a lump sum, or via so many smaller payments over time. The latter, small amounts over a long time period, would mean that these annuities are made available to nearly anyone with the foresight to plan prudently for the future, mainly for retirement.
A lump sum purchase comes in very handy when a person receives retirement benefits. It also helps in financial windfalls such as an inheritance. In most of the cases, an annuity income, that is coming from one single lump-sum premium, becomes available immediately.
In regard to returns, annuities get classified as being either ‘variable’ or ‘fixed’ return annuities. In variable return annuities, your amount received will depend on factors such as investment performances from where the annuity premium actually was invested. Whereas the fixed annuity is a continuous fixed amount, no matter how the investments perform.