Who wouldn’t love to know that in retirement, they will have a guaranteed income for life? After all, you would not have to worry about running out of money. In addition, the ups and downs of the stock market would be less stressful. Research has even found that retirees with a reliable source of income, like Social Security or pension, are happier than those without. But what if you don’t have a pension? Or what if you need more than your Social Security income? This is where annuities come in. Knowing the basics of annuities is important before you decide to invest in one.

In its simplest form, an annuity is an agreement with an insurance company. AARP says that by turning over a sum of money, you are then able to collect guaranteed income to help with retirement. The amount of your monthly checks are largely based off of your age and gender. In addition, the interest rate from when you bought the annuity is taken into account.

Guaranteed income sounds wonderful, but it does require a commitment. By having an annuity, you are handing your money over to someone else. Know that money spent on an annuity is money you can’t access, unless an emergency arises. Even then, this will be a great expense.

Before buying, you should know exactly what you want. There are many types of annuities. Some will give you immediate income, known as an immediate annuity. Others will give it to you later, known as a deferred annuity. Is your goal to have a predictable income, or one that rises and falls with the stock market? Furthermore, if your goal is to invest, you have even more options.

Most importantly, the salesperson you buy from matters. Financial advisers will guide you in the right direction for your wants and needs. Be sure to understand all of the fees and surrender charges you may face. It is important to work with someone you trust and have a relationship with. We have had to help clients who were tragically talked into a 20 year annuity when they were 90!

As you can see, there is so much to know regarding annuities. Don’t buy one blindly. Knowing the basics of annuities can help you make a more educated decision for you financial future.