What is an Annuity? How does it work? How can it benefit me? What types of Annuity are there? Which would be best for me and my family?
An annuity is an insurance contract between you (the annuity owner) and an insurance company. In return for your payment, the insurance company agrees to provide you either a regular stream of income or a lump sum pay-out at some future time (generally, once you retire or pass age 59 1/2).
Under an Immediate Annuity, you begin to receive payments at once. You can choose to receive payments for a certain period of time or for the rest of your life.
Under a Deferred Annuity, you typically begin to receive payments at some future date, usually upon retirement. Deferred annuities usually allow you to make periodic withdrawals, and to invest a lump sum all at once or make periodic payments, which can be either fixed or variable. You do not make any tax payments until you make a withdrawal.
Fixed Annuities offer a guaranteed rate of return, typically over a period of one to 15 years. They are usually invested in government securities and corporate bonds.
There are two basic types of Fixed Annuity:
Variable Annuities enable you to invest in a selection of portfolios, called sub-accounts. These sub-accounts are tied to market performance. There are two special types of Variable Annuity: