Thursday, June 21, 2012

Defining and Explaining Annuities

An annuity, in brief and simple definition, is an agreement where in return for a certain fee, an insurance firm provides a steady stream of cash to the person who makes such payment. Annuities are especially appealing to individuals planning to retire and continuously receive income. There are actually many different kinds of annuities and two of its most popular forms are fixed and indexed.

Fixed Annuities
Fixed rate annuities are actually the least risky of all annuities. Fixed annuities provide an assured ROR (rate of return) for a span of time. The assured initial investment return makes it an ideal investment for people with very low risk tolerance or those who want to have access to their funds in a short period of time. Here you get a respectable return and it is tax deferred up until you start to withdraw your money.

These annuities can either be deferred or immediate. Immediate annuity begins making payment the instance the money is deposited. With deferred annuity, payments begin at the end of a particular period that was agreed upon, or once the annuitant reaches a specific age.

Fixed annuities are ideal for elder investors who want a safe and sure return and are not that keen on managing investments.

Indexed Annuities
An indexed annuity typically encompasses a rate that is attached to a monetary market index, an equity market index, in most cases. The benefits of this type of annuity is a potentially higher average return as compared to fixed rate annuity or fixed profit assets, a risk minimizing aspect which permits you to renounce higher returns in trade of a guaranteed return minimum, decreasing the discrepancy of returns when it comes to both low and high end.

An index annuity makes for an ideal fit for some people, yet not for all people, based on the value in which the person investing places on risk reduction as well as yields.

Choosing the Apt Annuity for You
Prior you make the decision on which particular type of annuity is best for your financial goals, retirement as well as needs, make sure to study the different options available to you and seek the help of an expert financial adviser to explain all of the pros and cons of each type of annuity that best matches your particular situation. Evaluate the advantages as well as the disadvantages of the kinds of annuities that the expert explained and then make your choice.

Rogers is a freelance writer that specializes in various financial topics like structured settlement, investments and money management.

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