Debt Consolidation

An annuity is basically a contract you make with an insurance company. You make either a single payment, or a series of payments to the insurer. In return, they will give you back a fixed amount every month, starting immediately, or after some period that you have agreed upon. Typically, annuities will provide for tax-deferred earnings growth and may include a death benefit.

In the case of a retirement annuity, you are able to make a lump-sum deposit right before you retire, when you might have received a large amount of cash from other retirement funds such as work benefits. This deposit is applied to the one-time funding of the retirement annuity. You usually begin to receive the payout after a few months. In this manner, you receive an immediate income upon retiring.

Annuities are an excellent choice for retirement planning. During your working life, you can pay a small amount every month to the insurance company. Over a period of years, this can build up into a healthy amount in your account. Depending on the annuity you have chosen, fixed or variable, your money will be earning interest or may be invested in various equity markets or mutual funds.

When you retire, your insurance company starts to pay you back. Depending on what type of scheme you had chosen, it may be for a fixed period of time, like 20 years for example, or for your lifetime. There are two basic types of annuities, either fixed or variable. In a fixed annuity, the payments are fixed while in the variable scheme your periodic payments will depend on the performance of your investments.

In contrast, an indexed annuity takes into account the changes in one of the well-known equity indexes. The return will vary based on the changes in the selected index. Typically, there will be a guaranteed minimum return. Equity-indexed annuities combine the features of fixed-return traditional annuities and the equity market, giving the best of both worlds.

Variable annuities are regulated by the SEC, since they work like securities. On the other hand, fixed annuities do not fall under the oversight of the SEC, as they are not based on securities. Because of the fact that an indexed annuity combines both insurance and securities features, it may or may not be regulated by the SEC, as it may or may not be considered a security. It depends on the mix of specific feature in each indexed annuity.

- Kenneth Nuss

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