Annuities are financial products designed to provide a steady income stream, primarily used as part of a retirement plan. When you purchase an annuity, you make a lump-sum payment or series of payments to an insurance company. In return, the insurance company promises to make periodic payments to you, either immediately or at a future date. This can help ensure a stable and reliable income during your retirement years.
There are several types of annuities to consider. Fixed annuities offer guaranteed payments that do not change over time, providing a predictable source of income. Variable annuities, on the other hand, allow you to invest in various funds, meaning your payments can fluctuate based on the performance of these investments. Indexed annuities combine features of both, with returns linked to a specific market index but with protections against market losses. Each type of annuity has its own benefits and risks, making it important to choose the one that best fits your financial goals and risk tolerance.
One of the key benefits of annuities is their ability to provide lifetime income, helping to ensure you do not outlive your savings. This can be particularly reassuring in retirement when you might not have a regular paycheck. Additionally, annuities can offer tax advantages. The money you invest grows tax-deferred until you start receiving payments, which can help maximize your savings over time.