Annuity Definition

Before you opt for an annuity, you should know exactly what you are getting into. There are benefits and drawbacks of this retirement vehicle. While this is the perfect choice for some people, others find it to be a bad financial decision.

It is simple to understand the annuity definition: a fixed sum of money paid out on a regular schedule, usually monthly or annually.

Knowing the definition of an annuity is a great start, but this does not mean you should immediately go out and invest in this manner.

Annuity Benefits

The main benefit of an annuity is the lifetime income. No matter how long you live, you are guaranteed to receive income as outlined in your contract. Some people love this security and the feeling of knowing that a steady flow of income will always be coming their way.

Did you know that you can add inflation protection to most annuities? Although this is more expensive, it helps ensure that your money will keep up with cost of living increases.

Annuity Downfalls

Are you aware that not all annuities are created equal? This is a shock to many people – especially those who have already purchased an annuity. Generally speaking, there are two types of annuities: deferred and immediate. Within these two options, you can choose either a variable or fixed annuity.

All of these choices can lead to a stressful, worrisome purchase process. For this reason, it is essential to find an advisor who is willing to walk you through the process in an honest manner.

Annuities can be very expensive. In addition to big upfront charges, there are back end fees, such as those for withdrawing your money too soon. If this is not bad enough, you will have to pay administrative and record keeping fees every year.

Now that you know the annuity definition, as well as some of the more prominent pros and cons, you can decide if this is a good choice for you and your family.

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