Annuities are most often used for retirement income in a series of payments or a lump sum payment. A person in or nearing retirement will make a lump sum payment to an insurance company in return for a steady stream of income in the future. Though the annuity process may seem like a simple one, there are a number of factors for potential annuity buyers to consider and we recommend a consultation to understand your options fully.
There are two primary types of annuities: fixed and variable. A fixed annuity provides a set payment amount over the life of the annuity. A variable annuity has a payment amount that changes over time.
In most cases, the payment amount changes based on the return on investment of the money invested in the annuity. Annuities can be invested in a variety of ways including cash, stocks and bonds. As a general rule, variable annuities invested in the stock market can offer a higher return on investment (ROI) but have more risk than fixed annuities. Indexed annuities are another option that is actually a blend of both fixed and variable. Indexed annuities offer a chance for a higher rate of return than a fixed annuity with less risk than a variable annuity.
The level of risk you must consider is related to how you invest:
- There is no guarantee of interest(gain) or stock reduction(loss) in stocks due to the dependence on economic market’s performance of your investments portfolio
- A guaranteed ROI on a portion of your investment which may include investing in designated stocks/bonds;
- Invest in only bonds as they have guaranteed ROI.
Investors in the Xenia, Ohio, area should know that annuities issued in Ohio are covered by the Ohio Annuity Guarantee Fund. This fund works to protect the investor from financial loss in the event that the insurance company that issued the annuity is not able to meet its obligation by becoming insolvent. The fund provides various levels of coverage up to $300,000 depending on an investor’s specific situation.