Annuities
What is an annuity?
Annuities can be a good way to make sure you have income during retirement. An annuity is a contract between an individual ("annuitant") and an insurance company whereby the insurance company agrees to make periodic payments to the annuitant. In essence, the annuitant gives the insurance company a specific amount of money and the insurance company agrees to make payments for a specific amount of time--even for the rest of his life and the life of his beneficiary.
What is the purpose?
Annuities, sometimes called "upside-down life insurance," can be good for people who don't have a pension plan at work. In exchange for giving all your money to the insurance company, they promise to pay you a certain amount (either fixed or tied to investment performance) for as long as you live. Sometimes, however, the amount they pay you is small. The very small payoff from annuitizing is the reason that few people choose them. If you're considering an annuity, look at whether the cost of the insurance coverage is justified for the benefits that are paid. Annuities can benefit some individuals, but a majority of people will find better investment/return vehicles.
