Understanding the Various Types of Annuities

Your stockbroker may encourage you to invest in an annuity as part of a retirement package, or even just to help you diversify your investment portfolio. Annuities can be a wonderful investment vehicle if you find the type most suited for your current and future needs. Understanding how different types of annuities work can help you avoid problems down the line.

What are the Different Types of Annuities?

There are two basic types of annuities: deferred and immediate. A deferred annuity invests your money for a period of time before allowing you to begin taking withdrawals. An immediate annuity provides for payments shortly after making your initial investment. There are benefits to each type – for example, a deferred annuity, if managed properly, will continue to grow during the investment period and provide larger payments. Immediate annuities might be better suited for those investing closer to retirement age.

Within these two types are several subcategories, and understanding the differences can be critical. For example, annuities can either be fixed (setting interest levels for payment at one rate), variable (your payment amount may be tied to the performance of your investment) or a combination of both.

The Risks of an Annuity Investment

There are risks that come along with annuity investments, and your stockbroker should advise you fully before you decide to invest. You should make sure that your goals are aligned with the type of annuity you are investing in: for example, if you are risk averse, you might be more inclined to go with a fixed annuity. If you live on a fixed income, investing in a variable annuity may be troublesome if it fails to perform as expected, or if you are given bad advice about the nature of the investment.

Your stockbroker may even encourage you to invest in an equity-indexed annuity, which is a contract between an investor and an insurance company. These annuities work when the investor makes one or several payments, and the insurance company credits the investor with a return based on changes in an equity index. These are complicated products, and you should not invest in one without understanding how your index-linked interest rate is being calculated.

If you have invested in an annuity that did not meet your needs or if your broker or brokerage firm failed to adequately advise you regarding the risks and features of an annuity, you may have certain legal rights that require your immediate attention. The attorneys at Dimond Kaplan & Rothstein, P.A. have helped recover more than $100 million from some of the largest banks and brokerage firms in the world. Contact us to schedule an appointment or consultation today.

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