Immediate annuities offering a stream of income immediately and deferred annuities providing balance growth until a future payout date are the two most common annuity options, as Forbes claims. Annuity contracts allow investors to create a source of reliable income from their investment capital.
Both types of annuities allow investors to make long-term contracts with insurance companies and receive a future benefit in return, as Forbes reports. Investors pay a premium using a lump-sum payment or multiple payments in order to obtain future payments that usually guarantee a minimum income to the beneficiary. Annuities are popular with investors concerned about outliving their incomes and being unable to fund retirement living needs. Contributions are tax-deferred, and the investor may usually designate another beneficiary such as a spouse to receive a survivor's benefit after the account holder's death. For annuity services, insurance companies typically charge fees through the contract premium costs or against the account balance.
Like other investments, annuities do carry risks that investors should be aware of, as Forbes claims. Annuity balances may lose value depending on market performance and the impact of account fees. No two annuity funds are exactly the same, and investors should carefully read the contract information before buying.