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What Is Annuity – Understanding your Investment

The years before retirement may be plentiful, and the years after retirement may be uncertain. The only way to bring a balance between all these years is to foresee the drier years after retirement and prepare for them by investing wisely. One of the ways of doing this is by investing in annuities.

One may ask, what is annuity? Annuity is a type of agreement that an investor enters with a company, mostly an insurance company, and the main purpose of it is usually to ensure that the retirement days are financially secure and other long term goals are met.

An individual who asks what is annuity may also want to know how it works. The investor has an option to either deposit all the money at once or to pay it in premiums, and the insurer will then pay the investor at regular intervals either starting immediately or in the future.

Another question that an individual who inquired what is annuity may ask is whether there are any advantages to this form of investment. One of the benefits that are shared across the board with all types of annuities is the fact that the investment as well as any income earned before withdrawal is not taxed. Also, in case of the unfortunate circumstances of the death of the investor, a beneficiary may receive payments for the duration of their life, or as per the agreement in the contract.

The investor who asked what is annuity may also be interested in knowing whether there are different types of annuities to meet their investor requirements. The answer to this question is yes, there are. There are three main types of annuities, that is, fixed annuity, indexed annuity and variable annuity. In each, the investor will give you the payments as agreed, but the payments may vary across these options.

In a fixed annuity, a certain minimum is agreed upon during the years of investment, regardless of how the markets performed, in a variable annuity, payments are made depending on the performance of the investments or sub-accounts, while in indexed annuities, payments are determined by a certain index, though there is also a minimum guaranteed payment.

Of the three types of annuities, the variable annuity is considered as a security and is therefore managed by the SEC, while an indexed annuity may or may not be manage by the SEC. however, fixed annuity is not considered a security at all, and for this reason, the payments are not managed or regulated by this government body.

Annuities are a reliable investment tool for individuals who want to make their retirement years less uncertain. Individuals who are not afraid of a little risk may prefer to invest in variable annuity, while those who want set payments every month may prefer a fixed annuity. Whichever type of annuity you prefer, the bottom line is that you safeguard your future or prepare for goals in the future by investing in a retirement vehicle like annuities. There is a lot to consider, but in the end it will benefit you or your beneficiary during those days.