Annuities have been present since the days when Rome ruled an empire. Roman contracts, known as "annua", promised a stream of payments for a fixed period of time in return for a single premium payment. In the 20th century, there were group annuities, offering to companies a way to fund pension plans; however, after the 1960s, individual annuities began to outpace the sales of group annuities. Today, annuity plans are mostly individual, which makes it convenient for every person to dispose his own life and earnings at his own discretion.
Choosing an annuity, you should consider several factors, including fees and expenses, the fund choices and company reliability in this market. You need to find out a variety of funds to choose from if there a possibility to switch funds without a fee, which makes this or that fund attractive and, finally, to obtain the safest variant for your investment.
You are to minimize risk in case, when a company, which services you use, suggests you the stability of rates no matter what happens in the markets. This is comforting to people, who are near retirement, are risk-sensitive, or who are building up their fixed-income allocation. It is also a good idea to compare different policies, when choosing such company. Be sure to consider the insurer's claims-paying ability ratings and be confident of your commitment to a long-term investment before signing. You may loose up to ten percent of early-withdrawal penalties if circumstances will make you change your decision of long-term investments.
As it has been said above, there are four major annuity types, which are variable, fixed, indexed or immediate annuity. Let us focus and take a closer look at the first two types of annuities, as they are the most common ones.
- A variable annuity allows to have a variable payout, depending on the investment returns of the funds you choose. Variable annuities are more often associated with the savings or accumulation phase. These annuities are similar to mutual funds and offer a more conservative approach for those, who are unwilling to assume the market risk.
- A fixed rate annuity provides a guaranteed rate of return - they are often associated with a payout stage. Most investors buy them with a lump sum payment. You can choose between varying maturities from one to ten years. Longer commitments in any sphere usually mean higher interest rates. A traditional fixed annuity is a contract between you and the equity. Your annuity earns a competitive interest rate, which is declared by the board of directors in the equity you choose. Your interest rate is guaranteed for a specified period of time and also contains a guaranteed minimum interest over the term of the contract. Taxes are not due on earnings until withdrawn. The benefits and features of American Equity's traditional fixed annuities, for instance, include a tax-deferred growth, competitive current and renewal interest rates, first year additional interest rate bonuses or multi-year guaranteed interest rates, no up front sales charges or fees and many other advantages.
It is interesting to know that both types of annuities may be used to save for retirement and to generate monthly payments once you retire as well. The fixed annuities provide fixed payments or payments that vary, based on a certain formula.
Having discussed the present and the past of annuities, let us think what is waiting for the future investors in this sphere. You can certainly say that the annuity industry should continue to grow and expand, since the general increase in prosperity for Americans and other developed nations over the long term has resulted in more investable funds. Tax-advantaged investments have made the tax deferral advantage relatively more attractive.
Although some things about the annuity business have not changed and even have become more complex, all the innovations lead their way toward changes in the annuity industry that will benefit consumers, distributors and manufacturers.