Home > Annuities > What to Expect When Buying an Annuity

What to Expect When Buying an Annuity

Annuities are popular saving tools for those interested in creating streams of income at a later date. When an investor buys an annuity he or she should expect a future income stream at date he determines at his discretion. Annuities can be an investment vehicle that offers stability, while giving an immediate income stream, or tax deferred tax benefit. Developing a retirement account that is able to grow by deferring taxes until a withdrawal is made can be something the investor would crave.

Any investor seeking to create a diverse portfolio that accumulates funds tax-free for increasing future income streams, should expect these benefits purchasing any number of these annuities. An annuity is a contract between an individual and an insurance company for that promises to pay a fixed income. With annuities, the level of predictability helps calm fears of the markets ups and downs for those who are about to retire. The actual amount of return repayments will often depend on the amount of money initially invested, the length of time that has passed, the type of annuity purchased, and the performance of the market.

There are various types of annuities that exist and all with slight variations that may appeal to each investor, depending on his aversion to risk and financial goals. Variable annuities for example, allow the investor a little bit of control to where to place his or her money. The investor may elect to place a percentage of that money in a higher risk fund as well as an index or bond fun. Similarly, an investor may elect to place funds in an indexed account of which the performance is tied to the investor.

Fixed annuities can offer a predetermined rate of return for the investor – say at 3% annual growth. While this might be lower growth to other investments, it is often a favorite of investors who want to keep their money safe and allow for the funds keep pace with inflation. Since market volatility is bound to occur from time to time, those investors who have place some of their earnings in fixed annuities will maintain a steady stream of income and negate much of the financial losses that traditional stocks may experience.

With annuities, the investor can get his funds back when he retires in a percentage that is entirely based on his discretion and on his fluctuating needs from year to year. Developing income for retirement with annuity accounts can create periodic payments the investor knows will be there for a particular time period. A diverse portfolio with several annuity accounts can all have various distribution or pay days that can supplement other investments the investor has made. With the predictable fluctuations in the market, fixed annuities generate the attention of conservative and frugal investors who would like to foresee a steady and dependable rate of return.

Further, he can either elect to be paid out all at once in one lump sum or in installments for period of time, say 10 to 30 years. For example, an investor can expect at the age of 62, 6% a year for the next 25 years from his account. Of course, the longer the investor waits to make good on those withdraws, he can expect more during the distribution phase.