While low interest rates are not great for certificates of deposit or savings accounts, they are garnering renewed interest in annuities, according to “Annuities are attracting increased attention” by Kimberly Quillen of The Times-Picayune. Annuities have been around since the 1700s when they were used by European high society members who took care of family members without other financial support. They became popular in the United States during The Great Depression as households no longer held many generations under one roof. They are good for investors trying to balance the security of their principal with immediate and future cash needs.
Novice investors can be easily confused by annuities, especially with some confusing marketing out there. They are bought through insurance companies in either a lump sum payment or multiple payments over time so they rely fully on the strength of the companies from which they are purchased. Investors then receive payouts over the life of the annuity. By investing your money, the companies hope to earn more than they payout to you over time. Annuities can be deferred, where you don’t receive payouts until a future date, or begin immediately. Deferred annuities come in two types as well: a variable or a fixed annuity. The earnings you receive from both types depend on underlying investment performance. While annuities may not be the best product for all investors, their guaranteed lifetime income and flexible investments are just a few of the annuity benefits worth looking into.
