There are many different types of annuities that one may find in the market but they can be summarized as fixed or variable.
Fixed annuities offer a very low-risk retirement because you will be receiving a fixed amount of money for the rest of your life. Downside to this is if the financial markets are doing well then you are forgoing the potential gains. Upside though is that you have a low risk fixed interest rate with a guaranteed income for life.
Variable annuities offer a chance to have your money grow while still receiving an income from the annuity. The payments you receive from the annuity will fluctuate; they will be larger when your account does well in the market or small when it does not do as well. There is typically a guaranteed minimum income stream which is obtained by having a guaranteed income benefit option.
The downside to a variable annuity is that you will have an income that fluctuates, so if you are not good at budgeting your income this might not be you. Also, if you need a fixed amount of income each month this would not be an ideal investment.
With that said if you have a great fixed income that is coming in and you would still like to have some growth exposure then a variable annuity might be a good option.
Always check with your financial advisor first before making a decision.
Caveat Emptor (let the buyer beware)
Some financial advisor will try to push you into an annuity. There are a few bad eggs out there and you need to be aware of it. Do not let them make you feel stupid and think that they know what is best for you.
I will publish an article later on this week on keys to knowing you have found a good financial advisor.
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