Annuities

Annuities are savings plans sold chiefly by insurance companies to provide retirement income. They provide fixed, regular payments to the annuitant (owner of the annuity). A type of annuity called a life annuity ceases on the death of the annuitant. A life annuity with installments certain provides payments during the lifetime of the annuitant or for a fixed number of years, whichever is longer. If the annuitant dies before receiving the guaranteed number of payments, the insurance company must continue the payments to the beneficiary.

Some types of annuities guarantee the refund of all money contributed by the annuitant. If the annuitant dies before receiving the full amount contributed, the beneficiary receives the balance.

A joint and survivorship annuity provides income to two people. Payments are made initially to both people. When one dies, the survivor usually receives smaller payments until his or her death. Variable annuities can protect annuitants against inflation. Variable annuity funds are invested principally in stocks, and the payments vary according to the performance of the stocks. Ideally, as inflation increases, stock prices will also increase and provide higher payments to annuitants.

Employees of nonprofit organizations and public school systems can buy tax-deferred annuities. People who purchase this type of annuity can postpone paying taxes on the income they contribute to the annuity until a later date, usually after retirement.