While there is no such thing as a perfect investment, there are a number of ways to use annuities for your retirement. An annuity is a financial product that offers an investor the opportunity to purchase a defined benefit. For example, a person may buy an annuity that would provide him or her with a steady stream of income, such as $1000 per month. While annuities do not offer rates of return as large as other investments, an annuity offers an investor a guaranteed benefit amount. This guarantee is made by the insurance company that offers the annuity.
Due to this guarantee a fixed annuity is an attractive option for a person who is nearing retirement or who is in retirement and who needs a safe place to invest his or her money. By purchasing a fixed annuity, a person can stop worrying about the ups and downs of the stock market and the effects on his or her retirement account and simply relax. Once purchase, the annuity will provide monthly payments to the annuity owner for as long as the annuity contract stipulates.
For those with some time before retirement, an alternative type of annuity is a variable annuity. In a variable annuity, an investor can invest money in the stock market or other investments in a tax advantaged manner. While tax advantages are available in other types of retirement accounts, not everyone has access to a 401(k) or similar retirement account. By allowing the annuity owner to make stock and other investments with the money in the annuity, a variable annuity may provide a higher rate or return than a fixed annuity. The amount of the payoff from a variable annuity will depend on the investment performance of the money in the annuity, though variable annuities do also offer fixed rate investment options.
Annuities are offered in a number of different variations beside fixed and variable. For example, a person can choose an immediate annuity or a deferred annuity. In an immediate annuity, payments start at the time of the annuity purchase, while payments start at a later date with a deferred annuity. Some deferred annuities are also offered with flexible payments that are based upon a person’s income in a given year. Annuities can also have two owners, allowing a husband and wife to provide for a steady income stream for a spouse after one of the owners passes away.