Before Purchasing Annuities Understand Different Types

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Using Annuities As Your Financial Tool

Topics: Annuities, Financial Added on: Thursday, April 14th, 2011 Posted by: yourwealthpuzzle Leave a Comment

Why Annuities May Be Right For You

Annuities have been labeled as complicated, expensive and hard to understand; but in tough economic times, they may be the financial tool you need.

In times of economic turmoil annuities work well in some portfolios due to the stable guaranteed stream of income that they provide.

This guaranteed income provided by an annuity investment makes annuities a popular financial tool. When the financial markets are up and down, the instability can wreak havoc on your investment income, an annuity could help steady that unrest.

However, before investing in an annuity be sure to consult with your financial planner; they can help you filter through the pros and cons of annuities.

This article is to help you understand the different types of annuities available to help you become more comfortable with annuities; that way you can ask your financial professional the right questions.

The Different Types Of Annuities

1) A Deferred Annuity

Deferred annuities defer your withdrawals and earnings. Your earnings will grow tax deferred until you start withdrawals. At withdrawal, earnings are taxed as ordinary income.

2) An Income Annuity

Income or “immediate” annuities start your payout’s right away, or “immediately”. However, once you put money into an immediate annuity you do lose access to your principal. The annuity company is guaranteeing you a stream of lifetime income and they cannot do that if you have access to the principal.

3) A Fixed or Variable Annuity

When your financial planner refers to a fixed or variable annuity they are talking about the type of investments within that annuity.

Fixed means the annuity holds investments that do not change in value with the financial markets. Your rate of return is guaranteed but generally low.

Variable means the annuity holds investments that will change in value depending upon the financial markets. The investments are stocks, mutual funds or bonds and the value of these rise and fall with the financial markets. Your rate of return varies but you are still guaranteed a stream of income if you annuitize the contract.

The value annuities can provide when properly used as a financial tool can enhance your portfolio. You just need to weigh the pros and cons to determine if annuities can be useful to you.

Narrowing in on the type of annuity that fits best with your personal financial need is not difficult once you understand the features and benefits of the different annuities on the market today.

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