Annuity Explained
An annuity is a financial product that provides a series of payments made at equal intervals. Primarily used as a means of securing a steady income stream, annuities are often a key component in retirement planning. They can help individuals manage their finances by converting a lump sum of money into regular payments, ensuring a consistent revenue flow during retirement.
Types of Annuities
- Fixed Annuities: Offer guaranteed payments and interest rates.
- Variable Annuities: Payments fluctuate based on the performance of investments chosen by the annuity holder.
- Immediate Annuities: Begin payments almost instantly after a lump sum investment.
- Deferred Annuities: Accumulate funds over time before payments begin.
Benefits of Annuities
Annuities can provide several advantages:
- Guaranteed income for life or a specified period, helping with long-term financial security.
- Tax-deferred growth; retirement savings can grow without immediate tax implications.
- Customizable options to fit individual financial goals and needs.
Considerations
While annuities can be beneficial, they come with fees and specific terms that may not suit everyone. It is advisable to consult a financial advisor to evaluate how annuities can align with your retirement objectives.