Daniel Stewart

What are Annuity Investments?

Annuities are fantastic investment products that can help many people in unique situations. The term "annuity" refers to an insurance contract issued by financial institutions. After you purchase annuities, the financial institution issuing it will distribute payments in the future. Those payments can last a predetermined amount of time or for the remainder of the investor's lifetime.

There are many reasons to invest in annuities. However, they're popular among retirees or those who want another financial security blanket once they reach retirement age. By investing now, you can receive payments later and benefit from tax-deferred growth.

While annuities are popular in retirement planning, no federal rules dictate minimum or maximum age limits. Financial institutions may set custom limitations, but you can purchase an annuity anytime as another opportunity to grow your wealth.

How Annuity Investments Work

Annuities are usually best for those who don't have an immediate need for liquidity. That's one of the reasons why annuities are so popular in retirement planning. When you're younger, you may need liquidity to purchase a home or pay for current living expenses. But if you have substantial financial assets for investments you don't need now, annuities are a fantastic way to get a guaranteed flow of income in the future.

There are two distinct phases of an annuity investment. The first is the accumulation phase. It's when you fund the annuity. Investors can fund the annuity in one lump sum. However, there's also the option to pay into the annuity over time.

The second stage is the annuitization phase. It occurs when payments begin.

How long the accumulation and annuitization phases last depends on the type of annuity you purchase. Immediate annuities are best when you have direct access to large sums of money, such as after a lottery win or settlement. These annuities can begin the month after funding. Or, you can defer them for a year.

Deferred annuities have a longer accumulation phase, lasting anywhere from two years to several decades. When purchasing the annuity, you can specify when payments start. This annuity is often the go-to for retirement planning.

Author Resource:-

Daniel Stewart has been helping people with their money management and personal finance with over 15 years' experience in business finance. You can find his thoughts at investment annuities blog.