ANNUITIES

Financial products that offer a stable source of income,

especially useful during retirement.

Annuities are financial products offered by insurers that are designed to provide a stable source of income, often during retirement. They function as a contract between the individual (the annuity purchaser) and the insurer. The individual makes a series of payments or a single payment to the insurer, and in return, the insurer agrees to make periodic payments to the individual in the future.

Main Characteristics of Annuities:

1. Guaranteed Income: Annuities are designed to provide guaranteed income for a specified period or for life, which can help ensure financial stability in retirement.

2. Accumulation and Distribution: There are two main phases to an annuity:

• Accumulation Phase: During this phase, the money invested in the annuity grows over time, either at a fixed, variable or indexed rate.

• Distribution Phase: During this phase, the insurer begins making regular payments to the annuitant, according to the terms of the contract.

3. Tax Deferred: Earnings in an annuity grow tax-deferred until they begin to be withdrawn, which can be a tax advantage for some investors.

Types of Annuities:

1. Fixed Annuities: Provide guaranteed payments at a fixed interest rate. They are safe and predictable, but generally offer lower yields.

2. Variable Annuities: Allow you to invest in a choice of underlying funds, such as mutual funds. Future payments depend on the performance of these investments, which can result in higher returns but also higher risk.

3. Indexed Annuities: These are linked to a stock market index, such as the S&P 500. They offer a return based on the performance of the index, but with a guaranteed minimum rate.

4. Immediate Annuities: Begin making payments almost immediately after purchase, usually within one year.

5. Deferred Annuities: Payments begin at a future date, after an accumulation period.

Ventajas de las Anualidades:

• Stable Income: They provide a steady stream of income, which can be crucial during retirement.

• Longevity Protection: They can ensure that money does not run out during the holder's lifetime.

• Customisation Options: Can be customised with various additional benefits, such as inflation protection or death benefits.

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