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Annuities & Investment Opportunities

What is an Annuity?

The term “annuity” refers to an insurance contract issued and distributed by financial institutions with the intention of paying out invested funds in a fixed income stream in the future. Investors invest in or purchase annuities with monthly premiums or lump-sum payments. The holding institution issues a stream of payments in the future for a specified period of time or for the remainder of the annuitant’s life. Annuities are mainly used for retirement purposes and help individuals address the risk of outliving their savings.

 

There are many types of annuities. The simplest is a fixed annuity, which provides a fixed rate of return—but typically at a lower rate than investors could achieve with different investments. Compare that to variable annuities, which deposit your money into sub-accounts, which are invested in the stock market. These investments can return more market-like returns, but come with risks similar to the market. Many other types of annuities exist, each with its own pros and cons.

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