An annuity is a contract in which an insurance company makes

a series of income payments at regular intervals in return for

a premium or premiums you have paid. Annuities are most

often bought for future retirement income. Only an annuity

can pay an income that can be guaranteed to last as long as you

live.

The word annuity is a Latin word. You can find it in the

oldest dictionary you have. Annuity means income. An annuity

is neither a life insurance nor health insurance policy. It is not

a savings account or savings certificate. You should not buy

an annuity to reach short term financial goals. There are several

different types of annuities. The word ‘annuity’ of course means

income. The word ‘deferred’ means income later. The word

‘immediate ’means income now. There are two types of annuities,

fixed and variable. The word ‘fixed’ doesn’t necessarily mean

your interest is fixed, it means your premium earns a minimum

guaranteed interest rate. Variable, which involves risk means

the dollars (your premium), you put into a variable annuity can

vary up and down.

There are two parts to a fixed deferred guaranteed income

annuity, a current interest rate and a minimum guaranteed interest

rate. The minimum guaranteed interest rate is the lowest rate that

your annuity will earn. This rate is stated in the contract. The current

rate is linked to the reserves and interest the company earns on their

portfolio, or for an external reference or index. You can buy a fixed

deferred annuity and start your interest income thirty days later.

However, it is better to wait twelve months, and then take the previous

years earned interest through the second year.

With an IRA, you can put your individual retirement account inside

of a fixed annuity, the only vehicle that can provide a guaranteed

retirement income to last you as long as you live. Insurance companies

are required by law to have reserves that back up the guarantee.