What are annuities?

Are you ready to invest your money, but are unsure of how or where to invest? Have you heard about annuities and are unsure what exactly one is? Annuity defined, from dictionary.com, is a fixed sum of money paid to someone each year, typically for the rest of one's life. This type of investment is one that is paid into for a set amount of time by the investor. Once the annuity reaches a certain age, the investor then receives a regular payment for a specific amount of time, usually for the rest of their life. Compared to other choices for investing money, like stocks and bonds, annuities provide a guaranteed source of income.

Types of annuities

Annuities come in many forms. There are several choices to choose from when deciding on what type of annuity in which to invest. Most annuities are transformed to fit the investor�s needs. The most common types of annuities are immediate and deferred.

Choosing the right annuity depends on an investor's exact needs. Speaking to an investment banker would help decipher everything one needed to know.

Immediate annuities

The immediate annuity is basically the exact opposite of a life insurance policy. A life insurance policy makes a lump-sum payment upon the death of the insured. With the annuity, the investor would give a lump-sum payment to the insurer in return for receiving a steady payment until the person dies. The immediate annuity begins payout immediately.

Deferred annuities

The deferred annuity is the most common type of annuity. This annuity is one that the investor makes payments into over a set amount of time, and then begins receiving payments from it once the annuity matures, or reaches a set dollar amount.

Finally, it is very important to go over the pros and cons of every investment one makes. The ability to decipher what is right and wrong for the future is very important. Speaking with an investment banker and conducting research about the types of investments makes an investment decision much easier at the end of the day, and usually, offers higher and longer-term rewards.

There can be a few different definitions but in short as it applies to insurance or financial services: = Two Main Annuity Types: Immediate and Deferred = The difference between deferred and immediate annuities is just about what you'd think.

With an Immediate Annuity your income payments start right away (technically, anytime within 12 months of purchase). You choose whether you want income guaranteed for a specific number of years or for your lifetime. The insurance company calculates the amount of each income payment based on your purchase amount and your life expectancy.

A deferred annuity has two phases: the accumulation phase, where you let your money grow for a while, and the payout phase. During accumulation, your money grows tax-deferred until you take it out, either as a lump sum or as a series of payments. You decide when to take income from your annuity and therefore, when to pay the taxes. Gaining increased control over your taxes is one of the key benefits of annuities.

The payout phase begins when you decide to take income from your annuity. For most people, this is during retirement. As your needs dictate, you can take partial withdrawals, completely cash-out (surrender) your annuity, or convert your deferred annuity into a stream of income payments (annuitization). This last option is essentially the same as buying an immediate annuity.