Q:

What is an annuity plan?

A:

Quick Answer

Annuities are plans sold by financial institutions designed to grow funds from an individual and then make out a string of payments to that individual at a later time, usually after retirement, explains Investopedia. The purpose of an annuity is to eliminate longevity risk, or the risk of outliving assets.

Continue Reading

Full Answer

There are four basic types of annuities: variable, fixed, immediate income and modified guaranteed. Variable annuities help to increase income for retirement and last a lifetime, according to Prudential. There are many investment options with this plan that help with preparation for retirement.

Fixed annuities grow at a steady rate of interest with tax deferrals for those who are more conservative. Immediate income annuities involve a one-time purchase after which payments begin, and modified guaranteed annuities give tax-deferred earnings with a long-term fixed rate.

Learn more about Financial Planning

Related Questions

Explore