by Simplicity Lett

Created on: April 29, 2009

Annuities - and, indeed, companies offering annuities - are getting a mid-level beat down in the news these days. Seen as worryingly long term investments with high surrender charge schedules, many people are concerned that the company they purchase with may not be around in the next few years to guarantee a return on their deposits. A prime example of this is A.I.G, which is in the midst of government takeover for poor investment practices.

However, there is nothing wrong with annuities per se, in fact they can be of great benefit to the investor, provided that careful attention is paid to exactly what is being purchased. There are several different types of annuities on the market today, some more beneficial than others depending on your needs.

Most annuities have two stages - the growth phase and the income phase (often called the annuitization stage). In the growth phase of an annuity, the investment you have put with your chosen company grows in accordance with what you have invested it in. See below for further clarification. In the income phase of an annuity, you are guaranteed a certain payment based on your investment and its earnings, either for a certain time period or for the rest of your life. The payment amount generally becomes locked in, and can be classified as a dependable income stream - for as long as the company exists.

There are a number of annuity types that can be invested in, including:

Variable Annuities - A type of deferred annuity (this means your interest is tax-deferred until you take a withdrawal) that invests in variable sub accounts of your choosing. The key word here is variable. Variable annuities are not FDIC insured, and fluctuate with the market on a daily basis, depending on what types of sub accounts you invested in. It is entirely possible that you can make a great deal of money with a variable annuity if the stock market increases. It is also very possible to lose large sums of money if the market heads south. Although many companies are sweetening the deal on these types of annuities with enhanced death benefit and income benefit additions which guarantee money available for your heirs or for income purposes, this type of annuity is considered to be risky as it is almost entirely dependent on the performance of your chosen sub accounts on the stock market.

Fixed Annuities - Another type of deferred annuity, where your investment is placed in a guaranteed fixed interest bearing sub account generally guaranteed by the issuing

• 1
• 2
• 3
• 4
• Next Page >>