Annuities

For many people, annuities are a very confusing subject. There are many stories, good and bad, floating around. While it would be difficult to explain, in a condensed manner, we will attempt a brief overview.

There are several types of annuities. Deferred annuities generally accumulate assets over a long period of time, with withdrawals usually as a single sum or as an income payment beginning at retirement. Immediate annuities allow purchasers to convert a lump sum payment into a stream of income that begins right away.

Deferred and immediate annuities can be either fixed or variable. Generally, interest credited and payments made from a fixed annuity are based on rates declared by the company, which can change only yearly. Fixed annuities are considered "general account" assests. in contrast, variable annuity account values and payments are baseed on the performance of a separate investment portfolio, thus their value may fluctuate daily. Variable annuities are considered "separate account" assets.

There are a variety of fixed annuities. One example, the equity-indexed annuity, is a hybrid of the features of fixed and variable annuities. It credits a minimum rate of interest, just as other fixed annuities do, but its value is also based on the performance of a specified stock index - usually computed as a fraction of that index's total return.