Annuities: 10 Things You Must Know
Not all annuities are alike, and some may not be appropriate for you. How much do you know about these investment products?
Annuities aren’t new. The annuity concept dates back to early Rome, when citizens would make a lump-sum payment to a contract called an annua in exchange for income payments received once a year for the rest of their lives.
As traditional sources of guaranteed retirement income — such as pensions — disappear, many retirees are wondering where to turn. An annuity may be the answer, but not all annuities are alike, and some may not be appropriate for you. Learn about these products and whether you should invest in them.
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Immediate Annuities vs. Deferred Annuities
There are two types of annuities: immediate annuities and deferred annuities. Immediate annuities are best for retirees who want to receive payouts right away.
If you invest money in an immediate annuity, an insurance company guarantees that you will receive a fixed payment every month for as long as you live (or as long as you or a beneficiary are alive). But, in most cases, your money is locked up after you hand it over to the insurance company, although some insurance companies allow one-time withdrawals for certain emergencies. So you don’t want to tie up all of your money in an annuity.
Deferred annuities are better for people who are still saving for a future retirement. The money they invest grows tax-deferred until it is withdrawn later.
A deferred annuity, also known as a longevity annuity, requires a smaller outlay of cash. With this annuity, you get guaranteed payments when you reach a certain age.
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