Annuities

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What is an annuity?

What are annuities? Annuities are financial products that create a pension for your retirement. You make one or more payments now, and in return, you get an income stream in the future. The standard annuity pays a lifetime pension.

Life insurance companies sell annuities; however, the reason to buy an annuity is quite the opposite of the reason for life insurance: whereas life insurance protects your finances in case of dying too soon, annuities protect your finances in case of living too long. Annuities are used to turn present income into future income, a popular means of providing for retirement.

Learn what's guaranteed in annuities?

When will the income start?

The principal division among types of annuity is between immediate and deferred annuities.

With immediate annuities, your income starts right away.

With deferred annuities, your income begins some time in the future. This usually means that at any time, you can instruct your agent to begin your pension. Before your pension begins, you are free to pay into the annuity, thereby enlarging the pension payments to come.

How long will the income last?

The standard annuity (called a "life annuity") pays a pension until you die. You can also buy annuities that pay a pension for only a guaranteed period of time or until both you and your spouse die or some combination of these options.

For an explantion of your options and their guarantees, read Annuities with Guaranteed Duration.

How large will the income payments be?

The size of your income payments depends, in part, on how long the annuity's payout is expected to run. For ordinary annuities, this estimate is based on your life expectancy at the time you instigate your income phase. (For annuities with guaranteed durations, it may be simpler.)

The size of your payments also depends on how much money you amass during the accumulation phase of your annuity. That hinges on how much you pay in, as well as what interest rate your annuity enjoys during the accumulation phase.

For an explanation of annuity interest rates, read Annuities with Guaranteed Interest.

Where can you buy annuities?

Only life insurance companies are licensed to create annuities, but banks and life insurance agencies sell annuities on their behalf.

If you'd like to speak with an annuity expert, call us today and ask to speak. Our phone number is 1-800-823-4852.

For further instruction, read about how to buy annuities.