What are Annuities?

An annuity is a financial product that provides a series of payments made at equal intervals. There are many types of annuities, but they can generally be categorized as either immediate or deferred. Annuities are often used as a way to provide a steady income stream, particularly for retirees. Here's a breakdown of the basic concepts:

Immediate vs. Deferred Annuities:

• Immediate Annuities: If you give a lump sum amount to an insurance company, they can provide you with periodic payments starting almost immediately. It's called an "immediate annuity" because the income stream starts right away.
• Deferred Annuities: With these, you give a lump sum or make a series of payments to an insurance company, but the periodic payouts to you are deferred to some future date. Until then, the money you put in grows on a tax-deferred basis.

Fixed vs. Variable vs. Indexed Annuities:

• Fixed Annuities: Offer a guaranteed interest rate and a fixed series of payments.
• Variable Annuities: The payouts vary based on the performance of investments you choose. These come with more risk, but potentially more reward.
• Indexed Annuities: The returns are based on a specific equity-based index, like the S&P 500. They might have a minimum guaranteed interest rate combined with an interest rate linked to the market index.

Lifespan of Payments:

• Life: Pay you for as long as you live.
• Joint Life: Pays as long as you or a partner/spouse lives.
• Term Certain: Pays for a specified number of years.
• Life with Term Certain: Pays for as long as you live, but if you die before a specified term (e.g., 10 years), the payments continue to a beneficiary for the remainder of that term.