Introductory Guide to Understanding Annuities

Properly understanding annuities can help you avoid making a poor investment decision. Here are the basics of annuities.

Purchasing Annuities

An annuity is typically purchased in one of two different ways. An individual can make periodic payments over her working life in order to purchase an annuity, or she can purchase one with a lump sum. This type of investment is available through insurance companies instead of a traditional financial broker.

What It Provides

Once you purchase an annuity, you will receive a regular monthly payment during your retirement years. Some annuities will pay you a fixed amount for a certain number of years. Other annuities will pay you every month for the rest of your life regardless of how long you live. Some annuities also have variable payment structures depending on how the investments of their portfolio are performing.

Benefits

The major benefit of this type of investment is that you get some certainty in your retirement. The insurance company tells you to pay them a certain amount of money, and they will provide you with a particular monthly payment during retirement. Many people like this type of investment better than subjecting themselves to the risks of the financial markets.

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