Depending on your life situation and the life situations of your loved ones, there are a few investment choices you can make to maximize your financial security!
Finding the best investment setup is paramount to long-term stability, and there are so many options to choose from!
There are two major categories of financial investments, split into factions by who gets benefits. They are:
- Life insurance – benefitting your loved ones, if you pass away
- Annuities – providing financial aid to you throughout your retirement years during a payout period
If you have a family or spouse who you wish to insure as a beneficiary, then life insurance is a good option.
If you are single, wish to be the sole beneficiary, and want to get money during a payout period during your lifetime, then annuities are a great fit!
Life Insurance is Not the Same as Annuities
When some think of retirement or investment options, one option that may pop into their heads is life insurance. While this is an investment, it is not the same as an annuity. Life insurance often relies on paid premiums and, naturally, is not flexible with payout.
That’s where annuities take the stage in financial investments!
There Are 3 Main Types of Annuities to Choose From
Annuities are a relatively safe and popular option for investors, as they provide a safer route towards gain. There are three common ways on how an annuity works:
- Fixed Annuities (The Safest Option)
- Variable Annuities (A Slight Gamble)
- Indexed Annuities (The Middle-ground)
1. Fixed Annuity
Fixed Annuities are great for those who are more conscious of market fluctuations. If you want a more stable income that is basic and easy, consider a fixed annuity. This kind of annuity provides a consistent, fixed, and reliable income that is based on the amount you hand over to the insurance company.
There are very few risks, and it is arguably the most popular choice for those who wish to take the most stable retirement investment route.
The investment minimums are tiny. Traditionally, it takes tens of thousands of dollars to get started with an annuity. With fixed annuities, you can put sometimes as low as $1000 down to get started!
The biggest con that people find with fixed annuities is a lack of growth. As soon as your accumulation period ends, payout begins, and these payments focus on stability, and it’s difficult to “play to win big” with fixed annuities. These payments also don’t tend to adjust for inflation.
2. Variable Annuity
These annuities are good for those who want some wiggle room for growth, who aren’t necessarily afraid of a portfolio failing. It is more of a gamble. Your investment is tied to either a portfolio or set of portfolios, depending on which insurance company you choose to go through.
If the specific portfolio does well in the market, you will see some gains that are higher than the fixed annuity amount. If the portfolio does poorly, your return will be lower, however, there will be a floor for how low your payments will be. Variable annuities guarantee you a return of premium, for safety purposes.
3. Indexed Annuities
We consider these annuities to be the middle ground between fixed annuities and variable annuities. Companies still base these annuities on how well the portfolio they are attached to does, however, there is a floor for returns that is higher than with variable annuities. There are multiple riders that a policyholder may choose to employ as well.
That being said, because of these added safety measures, there is less opportunity for growth, as many companies cap off the return amount after a certain point, should the portfolio exceed expectations.
This option is very popular as it provides you with a chance to make money with minor risk involved, essentially making you a veritable shareholder while mitigating risks that shareholders often shoulder.
The Bottom Line – Annuities Are An Investment Safe Haven
In terms of investments, annuities are one of the closest options you can get while not just directly creating your own portfolio. They are expertly managed with extra safety features. They have the stability of a life insurance policy with a payout period that you can use during your lifetime.
For optimal results with fixed annuities, there are a few rules to abide by. Try not to end up withdrawing your money early. There is a fee associated with starting the payout phase early. To avoid this fee, try bucketing your payouts in short-term and long-term accounts. Another pitfall to avoid is high fees. As with any investment, when you pay your lump sum, you give up the right to that money, and getting all of your money back is often impossible. Always read the fine print and ask about all extra fees associated with your annuity choice!
Fixed annuities are, in particular, one of the most common safe avenues for investors, and when types of investments and annuities are compared, they come out as one of the best bets an investor can make.
Annuities are a fantastic way to invest without tapping directly into the stock market.