Annuities
Annuities are financial products typically offered by insurance companies that provide a steady income stream, usually for retirement. In simple terms, you give the insurance company a lump sum of money, and in return, they promise to pay you regular income either for a certain period (e.g., 20 years) or for the rest of your life.
Types of Annuities
Fixed Annuities: You receive a guaranteed, fixed amount of money regularly.
Variable Annuities: Your payouts vary based on the performance of investments like mutual funds.
Immediate Annuities: Payments start right after you invest.
Deferred Annuities: Payments start after a set time, allowing your investment to grow before you receive income.
EXAMPLE:
Imagine you are 60 years old and invest $100,000 in a fixed immediate annuity. The insurance company agrees to pay you $500 per month for the rest of your life. If you live 20 more years, you will receive $120,000 in total ($500 x 12 months x 20 years). If you live longer, you'll keep getting the monthly payments.
However, the value of this arrangement depends on factors like fees, your life expectancy, and the type of annuity you choose. Always check terms carefully, especially regarding fees (which can range from 1% to 3%) and if there are provisions for inflation adjustments.
Annuities can be beneficial for someone seeking a stable income in retirement, but they can also be complex, and the terms vary significantly between products