An annuity is an income stream that provides guaranteed payments over a certain period of time. They can be used to fund retirement, provide meaningful income during retirement, or even help pay for long-term care costs. Annuities are financial contracts between a customer and a financial institution and can be quite complex products. With annuities, people can convert their savings into a steady income for a period of time or for their lifetime.

When considering taking out an annuity, it is important to understand the different types of annuities. There are fixed annuities, variable annuities, and indexed annuities. Each type has different benefits and disadvantages that someone should consider before making any final decisions.

Fixed annuities offer customers a guaranteed return of principal and interest every year. The return varies based on the type of fixed annuity purchased, but are typically lower than a variable or indexed annuity. With fixed annuities, customers can choose how often they want to receive payments and, depending on the annuity, may also have the potential for additional growth of their payments if the allocated funds generate higher returns.

Variable annuities allow the customer to choose a variety of sub-accounts that may include stocks, bonds and mutual funds. This type of annuity is more speculative due to the fact that investments are dependent on the markets, but they potentially have higher returns than fixed annuities. Variable annuities also provide certain enhanced tax benefits and living benefit riders, which can provide benefits if the customer dies or suffers an unforeseen health issue.

Indexed annuities are similar to variable annuities, but offer customers more stable returns. The index used to calculate the return of an indexed annuity is usually outside of the customers control and interest crediting rates are based on the performance of the index. The downside of indexed annuities is that the caps can be quite low when compared to other types of annuities.

It is important to understand all of the features, benefits and potential risks of an annuity before investing in one. Annuities can provide a secure income for many, but it is important to do your research. It is also advisable to talk to a reputable financial advisor before investing in annuities.