Annuities Definition: Let's try to look at definition of what an annuity is so that you will have a better understanding if they are the right or wrong solution as you are planning for your retirement.
None of us have any idea how long we will live after retirement. Since we don't know it makes it virtually impossible to know exactly how much money we will need to set aside prior to retirement.
One of the best ways to understand which annuity might be best for you is to first understand what an annuity is and how they can work for you. But not all, and in some cases any, annuities make your money work in a way that will take care of you in your retirement.
The history of annuities reaches all the way back to ancient Rome, nearly eighteen hundred years ago!
Most typically an annuity is a promise to provide a stream of payments to you for an upfront payment made to the annuity provider. Of course, this is a very simplified definition, and there are many types of annuities, but I hope this gives you an idea.
Again, the real problem has always been trying to determine how long someone would live once they began collecting on the annuity.
As we dig deeper into the definition of what an annuity is part of the formula includes determining the average life span of individuals which is part of determining which annuity, if any, works best for you.
As people live longer, which we are, the cost of an annuity will be corresponding to that data.
The best way to look at an annuity is to view it like an insurance policy. Just like car insurance, if you pay into it and never have an accident it was necessary, but still expensive.
Yes, you have peace of mind but it came at an expense!
If you have a life insurance policy and pay into every month and don't die, you have peace of mind, but it came at an expense.
Even though there are many types of annuities the bottom line is that you are counting on receiving some type of payment(s) in the future. Some annuities may pay your beneficiary and some may not. The more you have a guarantee of you or your beneficiary receiving monies in the future, the more it will cost you.
Almost like going to Las Vegas. The smaller the risk of your bet is, the smaller the payout! The bigger the risk, the bigger the payout!
So again, as we try to understand the definition of an annuity, the entire process depends on the risk you want to take. As I continue to add articles on retirement planning to my website, I hope to be able to answer all these questions for you.
Good Luck and May God Bless You!
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