There is (without a doubt) an overwhelming number of options when it comes to investments for your retirement; one of those choices, which many of you likely haven’t heard of, is an annuity. Despite that being the case, annuities are one of the most commonly used products in retirement plans, so it’s best you get a grasp on them before you turn 60 or 70 years old (and become senile).
Understanding that annuities have many different core functions and enhanced features, there are companies which can help you with personalized recommendations for your situation. Since annuities are one of the more confusing (albeit good) investment options available, it’s ALWAYS good to talk with a professional first that’s willing to give you a free consultation or is willing to educate you on the product and variables associated.
To give you a few examples of why you should always seek the knowledge from a professional, here are a few different annuities that are available on the market today:
Assuming you have some serious medical issues, this particular annuity may pay you up to 30% more than other (more traditional) annuities. Although common sense might suggest this: the annuity company is able to pay you more knowing that you likely won’t be around as long as somebody that’s healthier. There could certainly be downsides though, so always be sure to know what you’re getting into before you ever sign a contract.
A fixed annuity usually refers to an annuity that has a fixed interest rate. You may be able to relate this idea best to that of a CD: you invest your money for a specified period of time (3, 5, 10 years, etc.) and the insurance company will pay you a fixed interest rate over that period. As with any other product, rates are incredibly low but fixed annuities often have better rates than CDs.
In the US there are a few types of annuities that are linked to the performance of investments: indexed annuities and variable annuities. Depending on how it’s structured, the variable annuity can be one of the riskier types of annuities. With this particular annuity, your account value can increase substantially based on the performance of the market; however, it also remains completely susceptible to market risk and therefore the value can plummet quickly if the market takes a turn for the worse.
As you can see, annuities can be (and are) extremely confusing and complicated. Take that last example for instance: variable annuities can be designed so that they’re risky, however you can also get a variable annuity that has a provision where your gains get locked in AND where you’re guaranteed not to lose any of your initial principle (making it relatively safe).
These types of details and variance from one product to the next is the reason you should always meet with a trusted professional. Before you take that step, simply do some research online. There is an abundance of information available and you can even start by reading trough this article.
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