There are three types of annuities. Each is different in the way
money is invested.
A fixed annuity features a fixed rate of interest for the money
you invest. It is guaranteed by the insurance company. There is no
risk involved, but you will miss out on the gains found in the
riskier stock market. When you annuitize, your payments will be
fixed.
Variable annuities place your money in investment options called
subaccounts. These accounts are similar in form to mutual funds.
Each subaccount has a degree of risk that ranges from aggressive
growth funds to bond funds. You have the opportunity to make
substantial gains on your investment, but if the investments perform
poorly, you could lose out. The fees are usually higher with a
variable annuity as it costs you to switch your money among
subaccounts. When you annuitize, your payments will fluctuate with
the performance of your investments.
Equity-indexed annuities invest your money in a fixed account
which may earn interest based on the performance of a stock index,
such as the S&P 500 Index, the Dow Jones Industrial, the Nasdaq
Composite or the Russell 2000. You are given the opportunity to earn
money based on stock performance, yet retain the stability of a
fixed account. Yet, you essentially have a fixed annuity as the
gains are often fairly small. When you annuitize, your payments will
be fixed.
Equal Housing Opportunity (c) Copyright 2008 RateTake.com