Annuities can deliver steady retirement paychecks

Introduction to Annuities

Annuities are a popular way to create regular paychecks, especially for retirees. There are two major types of annuity products, fixed and variable annuities.

Fixed annuities provide fixed (unchanging) income flows, while with variable annuities payments will change (either go up or down) based on how the investments in an annuity fund perform. Effectively, variable annuities have higher risk but also a higher return potential.

Annuity payments can last until death of a retiree (or the spouse), or can be set up for to pay over a fixed period of time. The former are less risky in a sense that a retiree will continue to receive income. Payments can be received monthly, quarterly, annually, or as a single lump sum at a set date.

Investing in annuities can be done in advance of retirement. In that case, an investor will make deposits for a number of years and then, once a certain age is reached, receive payments. Another choice is to buy an annuity shortly before retirement, but then a significant amount needs to be invested at that time to receive a sensible paycheck over the years. 

When it comes to buying annuities, investors can acquire them through a financial planner or buy annuities online. Usually, financial planners will give a good overview, but keep in mind that they often work on commissions and may recommend products that pay the most for selling. Due to complexity and long-term financial implications, investors must check for various conditions such as annuity payouts, terms for annuities with long-term care benefits, potential cash payouts for annuities, and others. By scrutinizing and comparing multiple annuity products, investors can get a better deal.

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