What is Annuity?

If you are looking for an answer to the question, “what is annuity”, there is so much to learn about this type of investment. What you need to remember, annuities are not for everyone. So perform due diligence, partner with a licensed advisor, and by all means, ask questions, and do your homework. Many times your own intuition can tell you if this is the right type of investment for you and if it contains the particulars to meet your investment goals.

Briefly, an annuity is the revenue that is a return on an investment. Holding an annuity means that at one time you made a lump sum deposit or series of payments to an insurance company. This investment, over time, has earned you a dividend, and these dividends are returned to you at a pre-determined time, usually an annuity is a retirement vehicle. What is particularly financially advantageous to owning an annuity is that it is virtually tax free during its growth cycle. Only at the time of redemption are the proceeds from the annuity considered taxable income. Annuities are structured very similar in the way banks utilize CD’s, or certificates of deposit.

A Look at the Different Types of Annuities

There are several different types of annuities:

- Immediate and Deferred – this type of annuity refers to the repayment structure of funds back to the investor.

- Fixed or “Term Certain” Annuities – An upfront lump sum investment provides guaranteed ongoing payment for life, or for a fixed period of time, usually 1-10 years.

- Variable Annuities – Varaible annuities involve additional risk, however, they also allow you to diversify your investment options. A variety of portfolios, similar to mutual funds including stocks, bonds, and other types of securities are available and you can then determine your preferences as to what to invest in and the percentage of your funds you wish to be allocated to each part of your portfolio.

-Equity Indexed Annuities – Simply put, Equity Indexed Annuities are a hybrid of fixed and variable annuities.

Annuity investments are not for everyone, but can be a safe and smart mode of retirement income. Talk with a licensed advisor today and determine if annuity investment is a good fit to your investment goals.