Annuities An annuity gives you regularly scheduled payments on your investment that are spread out over a set period of time, but they aren't always adequate when you need money in a hurry. We can provide you with help.

Definition of an Annuity

All annuities can be simplified and defined as financial products, and they are arranged in an agreement between you and an insurance company.
You will pay the premiums over time and they repay you at regular intervals in the future. Beyond that, it is difficult to define one specifically
because there are a lot of types of annuities and different terms that can be set up.
You can select from a number of different kinds of annuities. Some of them offer different benefits or payouts, but there are a few types that are more common than the others.

  • Immediate Annuities
An immediate, or single premium annuity is paid for up front with a lump sum and will provide guaranteed income right away. These are typically bought by people who are close to retirement and want to get guaranteed payments.

  • Pensions
You could include pensions as a type of annuity as well, because they pay a fixed rate to the retiree based upon a number of factors related to their career.

  • Lottery Annuities
These are agreements made when people win the lottery, which spread the payout over a number of years instead of providing a lump sum up front.

  • Deferred Annuities
In this option, the payments are delayed while the annuity accumulates. They are then paid out in any of a number of ways once they reach the payout phase, and they benefit from certain tax advantages.

History of Annuities

In the good old days,annuities were very basic investment tools that were a lot like pensions . They paid the recipient a predetermined amount of money over a predetermined period of time, and set up guaranteed income for the owner.

However, as time went on, annuities were specialized more and more to meet the needs and wishes of a wider variety of investors. As a result, there are differing terms on things like survivor benefits, guarantees on the income and payment terms. The definition can also include structured settlements.
Sell Annuities
This is a whole category of annuities that arises out of a legal agreement, usually after a lawsuit. The defendant and plaintiff will come to an
agreement on the future needs of the winning party. Then the defendant puts money into the structured settlement, which will be maintained by
an independent third party such as an insurance company. In some cases, there might be a partial lump sum payout with partial payments.

Structured settlements can arise from lottery winnings, workers’ compensation cases, wrongful death lawsuits or personal injury or insurance settlements.

Advantages of Annuities

  • There are a number of advantages of annuities. For example, they provide you the opportunity to grow your money tax-deferred, enjoying all of the gains and helping you to invest more efficiently.
  • In addition, they are widely viewed as very safe and stable investments. They are almost always backed by insurance companies, so if you work with a trusted and established insurance company, you will not have anything to worry about in terms of receiving the payouts.
  • They provide you the opportunity to earn income for the rest of your life, which is really important in providing some stability in case you live longer than you prepare for when amassing retirement savings. It’s good to have a backup plan in the fortunate event that you enjoy a longer life than the average person.
  • You also eliminate the risk, which is a major benefit. The insurance company takes on the risk and that no longer has to be factored in when you are projecting how much money you will have coming in. That simplifies things for you, which is why annuities are so popular with people nearing retirement.

Disadvantages of Annuities

  • Annuities are complicated investment options that include a lot of extra expenses and fees, as well as administrative charges. That cuts into the amount that you will see when it is all said and done. They also tie up your money for a period of time, so they take away flexibility and remove some of your options. As a result, if there is a chance that you will need the money sooner, you may want to avoid annuities.
  • You also face tax penalties if you decide to pull out funds from an annuity before you turn 59 and a half. As a result, most people try to avoid doing this.
  • Once you weigh the pros and cons, you can figure out whether annuities are the right investment tool for you to use and whether you should buy them, hold onto your own or consider selling.