What Is an Annuity and How Does it Work?
Everybody knows about a checking account, advantages of a savings account or how to buy a certificate of deposit. However, if you ask them what an annuity is, you will probably get some shrugs. Annuities are often misunderstood, so in this article we’re going to cover the basics of how an annuity works, how to buy an annuity, and whether an annuity is right for you. What is an Annuity? An annuity is an insurance contract that provides a guaranteed stream of income for a specified amount of time or life. A guaranteed steady stream of income is the holy grail of financial planning, so why isn’t everyone flooding insurance companies to buy an annuity? Because any type of “guarantee” comes at a high cost and not everyone will need a guarantee. A financially savvy person saving responsibly for his/her retirement might be able to self-insure. On top of that, annuities are complex and there are different varieties of annuities with hundreds of options, riders, disclaimers, footnotes and...