Finance Articles

When you purchase an annuity you enter into a contract with an insurance company and make either one payment or payments in a series. They agree to return to you a fixed amount of money, either immediately, or after some agreed period of time. Usually, annuities allow you to create earnings that are tax deferred. Many include a death benefit.

With a retirement annuity, you can invest a lump-sum amount just before retirement, when you may receive a large amount from fixed deposits or work benefits. This amount goes towards making the one-time payment for the retirement annuity. The payout usually starts after one to twelve months and gives you an immediate income when you start retirement.

Annuities are a good tool available to you in your retirement planning. Throughout your working years, you are able to deposit a nominal amount into the annuity each month. Throughout the years, these deposits can add up to a large amount of money. Depending on whether you picked a fixed or variable scheme when you opened the account, your money will earn interest or it will be invested in the equity markets or mutual funds.

The pay back from the insurance company starts at a point in time that you choose, typically when you retire. Depending on the scheme you had chosen, these payments may be for a fixed period, say 20 years, or they may continue for your lifetime. In a fixed annuity scheme, the payments are fixed, while in a variable scheme, the periodic payments will depend on how well your investments perform.

On the other hand, an indexed annuity follows any changes in one of several well-known equity indexes. The annuity's return is based on any changes in the index on which it is based. In most cases, you are guaranteed a minimum return. Because of these characteristics, equity-indexed annuities combine the best features of a fixed-return traditional annuity product and the equity market.

Variable annuities are regulated by the SEC, since they work like securities. On the other hand, fixed annuities do not fall under the oversight of the SEC, as they are not based on securities. Because of the fact that an indexed annuity combines both insurance and securities features, it may or may not be regulated by the SEC, as it may or may not be considered a security. It depends on the mix of specific feature in each indexed annuity.