An annuity is an insurance plan that is designed to provide you with a regular income for either a set period of time or for the rest of your life. There are two types of annuities—variable and fixed. In addition, you can decide whether you need the funds right away, or at a future date. If you need the funds right away, an immediate annuity is your best option. Otherwise, an annuity is a great idea for retirement planning and financial support for long-term care.
The idea behind investing money in an annuity rather than a CD or any other type of investment, is that “risk pooling” allows insurance companies to offer clients bigger payments than they could accrue from their own savings. With a variable immediate annuity, for example, the value of your funds depends on the performance of the investment portfolio. Usually, these are mutual funds invested in stocks, bonds, money market instruments, or a combination of all three. On the other hand, if you don’t want your money to fluctuate with a variable annuity, you can choose to go with a fixed annuity. In a fixed annuity, you are guaranteed a certain rate of interest, as well as a certain amount per dollar in your account. With this type of annuity, you are guaranteed a fixed income for the length of your term.
In addition, there are many different period-certain annuities, single life annuities, and joint and survivor annuities. A period-certain annuity, for example, may include a five-year plan in which you receive a specific amount of money for five years. You can purchase five, ten, 15, and 20-year plans.
