Annuities are a well-talked topic in the financial world because of the simplicity it provides. A question that arises in most of the new investors is what is an annuity. Well in simple terms, an annuity can be defined as a contract between a company and the investor on terms that on the premium the company will endure future payments. This gives handsome money to the investors at the retirement to endure a secure retirement life.
Fixed Annuity
These annuities are insurances that guarantee to return both the principal and a fixed interest rate. A fixed annuity is deferred annuities but has the freedom to choose when to receive the payments from the company. This is referred to in the contract. In a fixed annuity, you would get a pre-determined amount at the time of retirement. The amount does not change under any circumstances and is bound by the agreement of the contract.
The interest rates are higher than the common investments in banks. However, if you wish to withdraw the amount before the maturity you are likely to pay penalties and the money you get is very low. The contract speaks it all. Get aware of the contract very clearly. This is considered widely to be the safest type among all, to get the returns. It holds the lowest risk. This is the most predictable and it gives the lowest return to the investor one among all. However,
Variable Annuity
In a variable annuity, the return is variable as compared to a fixed annuity. A variable annuity is depended on certain markets for the return. The markets can be share market, bond market or any market that changes continuously. This factor of the variable annuity gives it an exposure to broader investment and returns. Along with the benefits of the market investment if provides us with the protection under the annuity scheme. This annuity also gives the liberty of selecting the payments age, the withdrawn amount and gives the death benefits. These features make this type of annuity the best from the bulk. This makes it the popular choice among many investors, as it is appealing.
Well the advantages it provides won’t come without any disadvantage, would it? The fees in here are expensive than the other types. It also has annual charges and withdrawal charges that make it a little tough as an option. However, the variable market can actually give you much higher return than the fixed. Hence, the disadvantage can be ignored considering the payments sizes.
Conclusion
There are many annuities in the market we discussed the two that has the most returns for small investment. You could look for more types to get aware of all of them and make your choice.
