What is on earth is an Annuity? It is not a stock nor is it a bond. The more senior among us like to guarantee many aspects of their income.
The terms annuity and protected income strategy are very similar.
Let’s start with this definition from Wikipedia:
A series of payments made at given intervals is an annuity.
Although I sometimes prefer a more basic definition: A deferred savings account at an insurance company.
What on earth is a fixed annuity?
“A fixed annuity is an insurance contract that guarantees the insurer will pay the purchaser a fixed interest rate on their contributions to the annuity for a specific period of time.
Fixed annuities are lower risk than variable annuities, which determine interest rates depending on the performance of the underlying investments.” Annuity.org
This type of annuity serves best for a person that is not wanting to take much risk.
Most fixed annuities pay a fixed rate of interest each year. Some pay a bonus upfront and lock in a new rate of interest each year
What on earth is an Indexed Annuity?
Insurance companies issue and guarantee Indexed Annuities. “You invest an amount of money (premium) in return for protection against negative returns in the US equity market; the potential for some investment growth through being linked to an index (e.g., the S&P 500® Index); and, in some cases, a guaranteed level of lifetime income through optional riders.” Fidelity.com
Indexed annuities seem to be for more of the middle of the road investor that wants safety, but does not want the low rates of a fixed annuity. This type of annuity generally increases with an index like the S&P 500. It however does not decrease with market index losses. In this situation it pays “0%”. No Gain. No Loss.
What on earth is a variable annuity
Variable annuities have their value tied to the performance of separate accounts. They are really not all that differnt from mutual fund.
A Variable annuity is the third type of annuity.
Variable annuities are niether fixed nor indexed.
As such it can make gains or losses.
It carries additional risk compared to the other annuities.
What on earth is an annuity?
In the end whether fixed, variable, or indexed, they provide a stream of guaranteed payments over time. Take a look and investigate them yourself.
Read my Other Blog Posts here.
What on Earth is a Mutual Fund?
How to Visualize Your Future Success
Other ways to make money on line
By the way just so you know, if you would like to have a side hack to invest money in annuities.
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