Part 6 of 17

What are the Different Characteristics of Annuities?
There are several different types of annuities. They can be categorized according to three main characteristics: 1) Premiums, 2) Payment Return and 3) Return on Investment. During the past two weeks we have discussed topics (1) and (2).
(3) Return on Investment
Fixed annuities offer some sort of Guaranteed Rate of return over the life of the contract. In general, such contracts are often positioned to be somewhat like bank CD's and offer a rate of return competitive with those of CDs of similar time frames. Many fixed annuities, however, do not have a fixed rate of return over the life of the contract, offering instead a guaranteed minimum rate and a first-year introductory rate. The rate after the first year is often an amount that may be set at the insurance company's discretion subject, however, to the minimum amount.
Variable annuities allow money to be invested in insurance company separate accounts (which are sometimes referred to as “subaccounts” and in any case are functionally similar to mutual funds) in a tax-deferred manner. Their primary use is to allow an investor to engage in tax-deferred investing for retirement in amounts greater than permitted by individual retirement or 401(k)plans. Variable annuities are regulated both by the individual states (as insurance products) and by the Securities Exchange Commission (as securities under the federal securities laws). The SEC requires that all charges under variable annuities be described in great detail in the prospectus that is offered to each variable annuity customer. Of course, potential customers should review these charges carefully, just as one would in purchasing mutual fund shares. More on these topics in the weeks following.

Thought for the Week

There’s a trick to the graceful exit. It begins with the vision to recognize when a job, a life stage, or a relationship is over – let it go. It means leaving what’s over without denying its validity or its past importance to our lives. In involves a sense of future, a belief that every exit line is an entry that we are moving on, rather than out.