Annuity - sustany/dvg GitHub Wiki

Annuities are long-term�contracts�between individuals and�insurance�companies that individuals typically enter into as part of retirement planning.� Individuals make payments to the insurance company, which the insurance company will in turn�invest. �Insurance companies will then make regular disbursements to the individual, which are guaranteed for an agreed upon period of time.� In essence, an individual pays for the guarantee of income during retirement years, for the insurance company to grow the payments, and to remove the risk that the individual outlives their retirement savings.�

Although the balance grows tax-free, it is important to note that the periodic disbursements to the individual are subject to�income tax. �Unlike a traditional�401(k)�account, the money contributed to an annuity does not reduce an individual�s�taxable income.� Consequently, experts often recommend buying annuities after contributing the maximum amount to pre-tax retirement accounts for the year.�

Further, annuities are not all created equal: they can be fixed, variable, and indexed�each accompanied by a set of benefits and risks.� Fixed annuities guarantee a fixed rate of interest on an individual�s money for a specific period of time.� In contrast, a�variable annuity�allows individuals to invest in various�securities�such as mutual funds, with the disbursements dependent upon the success of the investments. �Indexed annuities combine the benefits of fixed and variable annuities because its returns are based upon the performance of a stock market index like the S&P 500�not on an individual�s investment decisions.

Beyond the investment and return options discussed above, the annuity terms also vary. There exist fixed-period annuities, life annuities, and life with period certain annuities.� Fixed-period annuities guarantee payments for a set length of time, such as 10, 15, or 20 years.� In contrast, life annuities end at the death of the owner.� Lastly, life with period certain annuities guarantee the owner payment for their life but they can also choose a fixed period of guaranteed payment. �Thus, while some annuities will end payments upon the owner�s death, others will continue to disburse payments to a beneficiary.� Under trust and estates law, certain annuities can be considered�non-probate assets�that are payable to designated�beneficiaries�at death and pass by�operation of law.�