How to Understand Annuities and Make a Safe Investment
Annuities are a type of investment made by people who wish to start a retirement portfolio or diversify an existing one. Most annuities involve an individual making a single, lump-sum payment to a life insurance company, which is then distributed back to the investor at a fixed rate beginning at the time specified in the contract.
- Research the different types of annuities and the companies that offer them. Be sure to examine the differences between fixed and variable annuities. You should also study the tax benefits offered by annuities, including the fact that the money you pay into the annuity will not be taxed, only the returns on the investment will be subject to income taxes.
- Determine how much risk you can afford to take with the money you are investing in an annuity. It is important to consider whether or not you can afford to lose the money you are investing, as this consideration will play a role in the choices you make during the following steps.
- Place your money in a variable annuity if you are willing and able to risk your money in order to earn higher returns. Variable annuities are managed by financial experts who invest your funds in hope of earning high returns. These annuities can result in a great return on your investment, but none of your money is guaranteed.
- Invest your money in a fixed annuity if you cannot afford to, or do not want to risk losing your money. Fixed annuities guarantee both the principal, which is the original sum that was invested, as well as the fixed income.