|Lilies seem like a pretty simple plant but there are over 50 different varieties and within each variety, there are different types. This is a lot like annuities, there are several types and within each type, there are features that vary with each type. So, I’ll keep this post simple by only referencing a fixed annuity which is the most basic type of annuity.
A fixed annuity is a financial product designed to provide a stream of income to the owner. Usually, the monies are not used until retirement. It is an insurance contract, so you know that there is an insurance company involved, that allows the owner to invest money in exchange for a guaranteed, fixed rate of return for a certain period. The insurance company determines and guarantees the fixed rate of return usually based on whatever the interest rate market is at the time of purchase. This guarantee makes them a popular choice for conservative investors since usually the rates are higher than cd rates and backed by the insurance company, they are a good source of income for those who are looking for a low-risk investment option.
It’s not for everyone though, there are some tradeoffs you need to be aware of, such as the fixed rate of return. It is fixed, which is a positive because you know exactly what your return will be. However, you can also look at this as a negative since you will not make more than that amount. If you are comfortable with this tradeoff then you may want to consider a fixed annuity. Other features to consider are the tax implications, estate planning issues, and annuity riders.
So, while I started by saying that a fixed annuity is the most basic type of annuity out there it is still complicated enough that requires some serious consideration before you decide to invest.