Annuities Are Investments For Retirement
Annuities are investments for retirement. Two words that go hand in hand with annuities and are important for you to remember are the terms accumulation and annuitization. You start in the accumulation phase. This begins from when you invest your money or buy into the annuity. After your account has grown for several years you can choose to receive payments from your annuity for your lifetime or for a specific number of years. This is known as annuitization.
What Types of Annuities Are Available?
Most companies offer three types of annuity contracts to their customers.
Variable Annuities
A variable annuity is a contract with various subaccounts. These subaccounts may offer a varying degree of growth potential. Similar to mutual funds, these accounts can make large gains if they are based on aggressive funds or accumulate less money if based on more stable funds. The gains or losses you achieve in a Variable annuity reflect the performance of the underlying stock or bond indices.
You can switch your money between subaccounts for a fee. After annuitization, your payment amounts will change depending upon how the growth fund is performing. Some companies offer a fixed payment plan that changes each year based on the outcome of the fund for that calendar year.
Fixed Annuities
For investors who want a low risk investment, fixed annuities are the preferred choice. Offering a fixed interest rate, these annuities growth steadily without any market fluctuation.
Equity Indexed Annuities
If you want to take advantage of stock market gains and still have the stability of a fixed annuity, an equity indexed annuity may be right for you. These contracts offer fixed interest rates with an added bonus of gains or losses according to how the stock market performs. Investors should remember that gains are not likely to be large since the annuity is set up much like a fixed annuity. Payments upon annuitization are fixed.
Death Benefits
Annuities and life insurance policies both have death benefits. The similarities end there. Generally, upon the owner's death an annuity will pay out an amount equal to the current value of the account or the amount of money actually paid in.
After annuitization occurs, the lump sum death benefit is no longer part of your annuity contract. If you want to ensure that your beneficiary will continue to receive payments after your death, you can add a term certain feature to your annuity. These contracts continue making payments to your beneficiary for a specified number of years after your death.
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