Understanding Annuities

Insurance and pension companies often offer annuities which go alongside life insurance and pension policies. Annuities are basically a way in which a person can pay money to the insurance company before they reach retirement age and then this money will be returned to them in monthly disbursements once they retire.

This is beneficial for a retiree as it is almost like opening up a savings account which will then pay back at a time when income is no longer coming in from employment. Conventional annuity policies are pretty risk free and provide the policy holder with a guaranteed income for life. This gives the policy holder a great deal of security in their retirement years.

There are also many different annuities policies available which can be more specific to an individuals needs. Annuity policies can be linked to investment options and therefore rise significantly as the market performs well. It is also possible to get annuities policies in which the annuity passes to a spouse or loved one in the event of death of the policyholder.

However whilst annuity policies can indeed be beneficial it is also important to realise that they are only one of a number of retirement solutions available and therefore may not be the best for your retirement needs. Conventional annuity policies will not always rise as inflation rises and therefore these may not be sufficient in the long-run as circumstances change. Whilst investment-linked annuity policies may seem like a better option they too are problematic. They can rise as the markets rise but so can they fall as the markets under-perform or stagnate.

Whatever your decision it is always a good idea to seek independent financial advice before committing to any policy. There are many different retirement solutions available and therefore no need to take the first one that comes along thinking it is as good as you can get. Shop around and make the best decision for your needs.