Annuities: 10 Things You Must Know

Annuities are a complex financial product and a popular retirement savings vehicle. At their heart, they are an insurance contract. Yet the lines have been blurred since variable annuities came out; they’re also considered a security. You may not have known that, but there is much more to learn about annuities. Here are ten things you need to know about annuities. 


Annuities Are Ancient 

The original annuities were set up in Ancient Rome. The citizen would make a lump sum payment according to a contract called an annua. They would then receive annual payments once a year for the rest of their lives. This eliminates the risk of someone stealing their life savings. 


You Can Buy Them Online 

Annuities are a type of insurance product. And you can buy annuities online just as you can buy life insurance or auto insurance online. Read this to find out more about buying annuities online.


There Are Many Types of Annuities 

Annuities may be immediate or deferred. Immediate annuities make payouts immediately. Deferred annuities delay the payments until a future date or until you decide to activate it. 


Your Annuity Can Have Survivor Benefits 

Annuities may be single life or joint life. Single life annuities are for the life of one person, while joint life continues payments to the second person until they die. Note that this will lower the payments you receive.

 You can arrange for the principal balance or principal plus interest to be returned to your family upon your death. 


Annuity Payments Are Based on a Variety of Factors 

Annuity payments are based on a number of factors. The most important factor is your age, though your life expectancy is also an issue. This is why immediate annuity payments are higher for men than for women. The more risk you are willing to take with the annuity, the more you will be paid when the market is up. 


You Can Get an Annuity at Any Age 

While annuities are popular with those about to retire, you can set one up at any time. For example, you can start making contributions to one at thirty or forty. 


You Can Offset the Rate of Inflation 

The essentially negative interest rate you receive on money in your savings account eats into your savings. On the other hand, you can sign up for an inflation-adjusted annuity. You can choose an annuity that will provide cost-of-living adjustments. Note that this will lower your payouts relative to a contract where you get the same amount year after year. 


Your Annuity Is as Safe as Your Bank Account 

An annuity is protected even if the insurance company that sold it to you goes bankrupt. The payouts will be protected by the relevant state guaranty association. 


You Don’t Want to Take Money Out of It Ahead of Schedule 

Deferred annuities allow you to cash out at any time. However, you’ll have to pay a surrender charge to do so. That surrender charge typically declines each year the money is invested in the annuity. 


The Money Is Generally Protected from Creditors 

Are you afraid of being sued? Do you think creditors will come after you? Money put into an annuity is generally protected from both like contributions to your IRA. The only exception is if you’re putting money into the annuity right before you file for bankruptcy. 

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