Annuities

An annuity is a series of fixed-amount payments at regular intervals over a specified period. In essence, this is a steady stream of cash for a certain period of time. Most annuities are purchased through insurance companies, although banks and brokers offer them as well. The minimum purchase price of an annuity is typically $1000 plus purchase fees (which vary).

Deferred annuities do not begin their annual payments until a later time. Immediate annuities begin paying out immediately after purchase. There are annuities that make payments over lifetime contracts, because the insurance companies figure you will die before you see your money's worth.

Some annuities are insured, while others are not. Also, annuities allow you to withdraw your principal, but you will often be subject to penalties for doing so. Your financial advisor can tell you more about annuities, terms, and different features.

Fixed Annuities

With a fixed annuity, the insurance company makes payments of a fixed dollar amount to the holder of the annuity for the term of the annuity's contract. The term of the contract can very, but it is usually until the holder of the annuity (the "annuitant") dies. Insurance companies guarantee principal and earnings with fixed annuities.

Variable Annuities

With this type of annuity, a minimum payment is guaranteed at the end of the accumulation stage. The remaining income payments vary depending on the performance of a managed investment portfolio in which the annuity allows you to invest. This annuity investment portfolio may include stocks, bonds, and money market funds.