May 8th, 2009 | by |
For people who are living off of retirement benefits and other forms of fixed monthly income, the prospect of investment is leaning toward safer, lower risk options that are still very profitable. In this regard, investing in annuities is a preferred mode of investments.
There are basically three types of annuities that investors can choose from and each of them fits a certain need that they (investors) are looking for.
1.Fixed rate annuities - this type of annuity entails giving a particular amount of money to an insurance company and the latter would guarantee a certain amount to the investor as a scheduled payment for the duration of the annuity. This is the perfect way to ensure continuous income for the investor while the insurance companies would make a consequential investment elsewhere in order to secure a larger amount of profit. The major drawback of this type of annuity however, is that there is a penalty period wherein the investor cannot withdraw any amount of money or else he will be penalized for it. It should be duly noted that fixed rate annuities are taxed deferred investments, which would mean that if any withdrawal is made before the investor turns 60 years of age, he might have to pay a higher amount an an IRS-imposed penalty.
2.Variable Annuities - this type of annuity investment is far more complicated than a fixed rate annuity because it follows the principles on life insurance policies, mutual funds, as well as savings bonds with tax deferred features. The investor will be made to choose from several mutual fund options as per his preference. The good thing with variable annuities is that it has financial benefits that are unique to it and it is a more profitable form of investment compared to the other 2 types of annuities.
3.CD annuities - this type of annuity is much like the fixed rate annuity, which provides security for investors and their money. This also prevents insurance companies from pledging interests and not paying them after a certain fixed period.
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