Annuities Explained: What They Are and How They Work

Did you know that only 10% of Americans are confident that they will have enough money to survive when they retire? If you are planning ahead because you want to make sure you are part of this 10%, you are in the right place. We have put together this short guide to share the ins and outs of annuities including the simplest annuity definition out there.

Keep reading to have annuities explained in a way you can understand.

What Are Annuities?

An annuity is a contract that is sold by a financial institution where you invest funds to pay out a certain amount of fixed income in the future. Usually, an annuity is set up for retirement purposes because people want to make sure they have enough money to survive once they retire.

People that are afraid of outliving their savings also invest in an annuity account. These types of accounts were designed to be a reliable way to secure a cash flow that is steady after the annuity is fulfilled. The key is to find a reliable financial institution such as RightWay Funding to ensure that you have the best annuity plan for your financial needs in the future.

Types of Annuities

The three main types of annuities include fixed, indexed, and variable. Each annuity has its own level of payout potential and risk.


This type of annuity will pay you a guaranteed amount. You can choose between a fixed deferred annuity or an immediate annuity. A fixed deferred option means that you will get paid later and an immediate annuity option will pay you right away.

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The con of a fixed annuity plan is that it has a pretty small return compared to the other options because it is a safer plan. Usually, the return is only a little bit higher than a certificate of deposit (CD) from a bank.


An indexed annuity type will give you a guaranteed payout as well but a portion of the return has to do with the performance of a market index. This option is riskier but still a safer option than a variable type. An indexed annuity type tends to have higher fees because they are more complex than a fixed option.


If you are looking for a higher return then a variable option will give you the opportunity to have the highest return out there. You can choose between different mutual funds. Those funds will then go to your personal sub-account where you will receive your payments during your retirement.

This annuity type is based on how well the investments in your account perform.

There You Have It: Annuities Explained

We hope that now that you read our annuities explained guide, you can make informed decisions on your own annuity plan and annuity income.

Did this blog post help you? Feel free to keep browsing our finance section for more tips and tricks.


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