Annuities have been around almost as long as any financial product and today they are still one of the best ways to guarantee life-time income.  There has been a lot of talk and press coverage about the misuse of annuities and how unscrupulous salesmen sell them inappropriately.  But the overwhelming majority of annuities purchased today have performed exactly as promised and are forming the secure financial foundations for millions of people.

 

There are 3 basic forms of annuities.

 

These products pay a fixed rate of return, much like a CD would, but defer the taxation on the interest until you take the money out.  As a result you often can enjoy a higher net return than you realize with traditional bank CD's.

 

In an immediate annuity you exchange a sum of money with an insurance company for a contract stating how much they guarantee to pay you on a monthly, quarterly or yearly basis either for a fixed time period, for your lifetime of a combination of your lifetime and a fixed period.  By using an immediate annuity you can be assured you will never run out of money.  These products can be purchased with automatically increasing payouts tied to inflation.

 

Variable annuities have the same tax-deferred features as fixed annuities and have the same death benefit guarantee, but the accumulation of growth and interest is tied to your selection of stock market based funds.  Newer VA's have various forms of income and withdrawal benefits that can help lessen the impact of negative market returns.