An annuity is a contract between you and an insurance company; they can be either fixed or variable annuities. Under that contract, the insurer agrees to make periodic payments to you, either immediately or at some point in the future. In a fixed annuity, the insurance company guarantees that you will earn a minimum rate of interest during the time that your account is growing. The insurance company also guarantees that the periodic payments will be a guaranteed amount per dollar in your account. These periodic payments may last for a specifically defined period, such as 20 years, or an indefinite period, such as the span of your lifetime or the lifetime of you and your spouse.
Fixed annuities help stabilize income from investments, and are most commonly used by people who are not fully participating in the workforce, are about to retire or have already retired.
If you are considering purchasing a fixed annuity, it is important to remember that you can often negotiate the price of these products. Also, the amount of money that an annuity will pay out varies, and sometimes varies greatly, between financial intermediaries selling these products, so it is in your best interests to shop around and avoid making quick decisions regarding annuities.
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