3 things to consider before buying annuity
An annuity is an insurance plan in which the investor is promised a series of annual sums, immediately or in the future. These plans are a great way of collecting money for one’s financial needs. Typically, an annuity has higher fees and less flexibility than savings schemes like a 401(k) or IRA. Nonetheless, it can be a superb choice for individuals who have maxed out their allowable contributions on these accounts.
Investing in annuities
Wisely investing in annuities requires close consideration of several things, such as:
Type of annuity
There are three major types of annuities to choose from – fixed, variable, deferred, and immediate annuities. Each of these annuities has its pros and cons.
- Fixed annuities: In these arrangements, the investor is guaranteed a fixed sum at a later date. These annuities have lower returns, as the investments are generally safe and predictable.
- Variable annuities: Here, the investor splits the money in a mutual fund portfolio as the buyer chooses. The annuity received depends on the performance of these funds. These investments are ideal for seasoned investors who understand the market well.
- Deferred annuities: With a deferred annuity, the money stays in the account for longer, giving it more time to grow, resulting in a larger payout over time.