Despite these benefits, annuities are not popular with most Americans, a phenomenon known as the “annuity mystery.” Many potential users are reluctant to give up a significant portion of their capital or are wary of high fees and complex contracts.
Types of annuities
Annuity is a contract between investor and insurance company. The investor makes a one-time payment or a series of payments, and the insurance company agrees to pay return for a specified period or until the investor’s death.
Fixed Annuity guarantees fixed payments.
Indexed Annuity: a portion of funds is invested in market indices with capital protection.
Variable Annuity: payouts depend on the performance of the invested portfolio.
Annuities offer their owners a number of advantages. For example, they provide a guaranteed return throughout life. Money paid into an annuity is not taxed until it is withdrawn. Variable annuities can help protect purchasing power against inflation. Annuities can be tailored to suit different financial needs, for instance, family annuity.
The product, however, has also its drawbacks. For example, many people think that annuities are very expensive. It takes a lot of money to buy such insurance, and the payouts seem small. However, these payments are for life.
Annuity can be useful if you look for a stable income in retirement, but it is crucial to carefully analyze the terms of the policy to decide whether it is right for you.
Source: https://www.forbes.com/advisor/retirement/are-annuities-a-good-investment/
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