What exactly is an Annuity?
An annuity is an investment product that provides safe, tax-deferred growth of your retirement nest egg. Annuities are considered low-risk, and can provide guaranteed, monthly income when you retire. There are many types of annuities with varying features & benefits. These include: fixed, variable, immediate, deferred & hybrid. We strongly suggest you consult with a financial professional to help you understand the various types of annuities before you purchase. Annuities are designed to insure the contract owner against the risk of superannuation, which means outliving one’s income. Older investors who run out of money to support themselves face a dire dilemma. Annuities were therefore created in order to mitigate this risk.
These contracts are guaranteed to pay out at least a certain minimum amount on a periodic basis to the beneficiary until death, even if the total payments exceed the amount paid into the contract plus any accrued interest or gain. Because of this type of protection and the fact that you cannot withdraw funds penalty-free until you are age 59 1/2, annuities are considered retirement savings vehicles by nature.
History of Annuities
Annuities have existed in one form or another since the Roman Empire. Citizens at that time would buy annual contracts from the Emperor. They would pay a lump sum to the Roman government in return for receiving an annual payment for the rest of their lives. European governments also offered a series of payments to investors in return for a lump sum investment now as a means of funding their wars during the 17th century.