Annuities       

There has never been more controversy about any safe money place than there has been about fixed annuities. There is a very good reason for this: the loud voices of Wall Street and the deep pockets of the brokerage industry have fostered a campaign to discredit this competitor. But you can’t dispute facts, and the facts are that while stocks, mutual funds, variable annuities and other “investments” lost a big percentage of their value in the Great Recession, annuities held their values and the income payments kept coming. In fact, the rock-solid performance of annuities in trying economic times has prompted our government to endorse them as a way to protect retirement savings. Read about how annuities have performed, how those with vested interest have disparaged them and why you need to know more about this safe place to keep your retirement money.


How Annuities Work                 

The simplest way to explain how annuities work is to describe them as an investment security that you pay money in to, and once you reach a certain date you start to receive regular payments for a set period of time, often times for the rest of your life. Investors, especially those who are very risk averse, like annuities because they provide a steady stream of income and unlike stocks, bonds, mutual funds and other common investment options, annuities are guaranteed.

The amount of time you pay in to the annuity can vary anywhere from a onetime payment, to many smaller payments over a long period of time. This will vary largely on the amount of the annuity and when you intend to start receiving payments. For example, if you start paying in to an annuity when you were in your 20s but don’t intend on taking payments until you retire, you will likely have many small payments, however if you waited to start when you were in your late 50s, you will need to pay more each month over a shorter period of time. Annuities provide a nice supplement (or primary income) especially for those who think social security might not be enough for retirement.

Once you reach the date where you will start receiving annuity payments you will be paid a guaranteed amount of income every month until you die. Some annuities will also allow your spouse to receive payments after your death until they die, but terms can vary depending on the annuity.

Typically the issuer will base the number of payments made on the average lifespan of someone in your position (which is calculated through extensive research on their part). If you live longer than the typical person then you will continue receiving payments for more than the annuity is worth. For example, if you pay in $50,000 and the issuer estimates that you will live for 20 years and you will get equal payments each month. If you live beyond 20 years then you keep receiving payments even if that exceeds your $50,000.