The concept of annuity is quite a simple one; an annuity is basically a fund that is held in the custody of the provider and is also grown by the provider. The annuitant, who is the owner of the annuity, principally contributes to the fund and reaps benefits in a structurally settled manner.
Annuities are viewed in different manners by people; some call it investment, some deem it to be an insurance with an assurance, while some term it to be an assured source of income.
What are Annuities?
Annuities are financial instruments that are kept and grown in the custody of a financial institution. The concept is very much parallel to that of insurance, here however, there is no coverage as such.
Any person can purchase an annuity or rather start up an annuity fund with a financial institute such as a bank or even a certain company (which is legally authorized to grow an annuity). The annuitant goes on depositing a certain sum every year with the institute, till it reaches maturity that is also known as annuitization method.
Upon this maturity, the annuitant is paid an installment or payment every year, or on some cases after a gap of some years. It must be noted that the annuitization method and investing period may overlap in some cases.
There are a considerable number of terms and conditions that are often included in this mechanism, such as in a variable annuity the return rate varies as per the prevalent market conditions or a fixed annuity gives a uniform rate of return.
In certain cases, there are some variable annuity guarantees which are certain conditions, where in the rate of return or the settlement schedule is affected as a result of some incident.
Annuities as Good Investments
From a financial point of view, annuities as an investment is a great option, due to its good rate of return that is spread over a few decades. It is a great investment option, especially if you are planning upon retiring in a couple of decades.
Upon retiring, you will have handsome income for a few decades, through the returns on investments of annuities. Now, when we call annuity a good investment, we mean that it gives a good income over a certain period of time, which is usually a few decades.
From the Wise Old Investment Genie
Annuities are good programs if you take them up as soon as you join your first job. Why? The returns are planned and spaced over your entire adult life. For example, the first return will pay for your wedding. The second installment will get a good house, the third installment will be for your kid while the third one will be for next kid.
It's a good idea and it will encourage good saving habits. The best thing that you can do is, take a fixed annuity or the one which is semi variable. In addition to that, you can also get a good guarantee on the annuity.
The second probability is that you can take up the annuity at say about 35 years of age, for your retirement planning and future medical expenditure. Make it a point to keep the annuity a fixed one, don't risk variables.
Premium or contribution payment can be made as per your choice and further contributions can also be specified by you, for example you can have an annuity that would specialize in crude oil and refinery reinvestment or one simply based upon real estates. Thus, the frank answer is that an annuity can be a very good investment, but personal opinions do matter.
Just be sure to note that this investment is a long term investment and will span over some decades, well at least one, plus there are certain pros and cons. Make sure that you calculate the rate on investment before signing up for the annuity.