Annuities: An Overview
Annuities are financial products designed to provide a steady income stream, particularly during retirement. They are often used as part of a retirement investing strategy to ensure financial security and mitigate the risk of outliving one’s savings. Annuities can be structured in various ways, but they generally involve an investment of a lump sum or a series of payments to an insurance company in exchange for periodic disbursements over time.
Types of Annuities
- Fixed Annuities: Provide guaranteed periodic payments, allowing for predictable income.
- Variable Annuities: Payments vary based on the performance of investment options chosen by the investor, offering the potential for higher returns.
- Indexed Annuities: Offer returns based on a stock market index with some level of protection against market losses.
Advantages of Annuities
- Steady Income: Annuities can provide a reliable income stream in retirement.
- Tax Benefits: Earnings grow tax-deferred until withdrawal.
- Longevity Protection: Some annuities offer lifetime income options, reducing the risk of depleting savings.
Considerations
While annuities can be beneficial, it's crucial to consider their fees, surrender charges, and complex features before investing. Consulting a financial advisor can aid in making informed choices tailored to individual retirement goals.