ANNUITY

An annuity is a financial product that provides a series of payments made at regular intervals, usually in exchange for an initial lump sum or series of contributions. They’re commonly used for retirement planning because they can provide a predictable income stream

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Key Features of Annuities

1. Payment Structure

   • Immediate annuities: Start paying out almost right after you invest.

   • Deferred annuities: Payments start at a future date, allowing the money to grow first.

2. Types of Annuities

   • Fixed annuities: Guarantee a fixed amount of money regularly. Low risk, predictable income.

   • Variable annuities: Payments vary based on the performance of investments chosen (stocks, bonds, etc.). Higher risk, potentially higher return.

   • Indexed annuities: Returns are linked to a market index (like the S&P 500). Moderate risk, often with some guaranteed minimum.

3. Phases

   • Accumulation phase: The period when you invest money into the annuity.

   • Distribution phase: The period when the annuity starts paying you income.

4. Benefits

   • Provides a steady income, often for life.

   • Can be tax-deferred while the money grows.

   • Can help manage the risk of outliving your savings (longevity risk).

5. Considerations / Downsides

   • Often have fees and surrender charges if you withdraw early.

   • Fixed annuities may not keep up with inflation.

   • Variable annuities carry investment risk.

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Simple Example:
You invest $100,000 in a fixed annuity that pays $500 per month for life. You now have guaranteed monthly income, no matter how long you live.