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Annuities are issued by Insurance companies as a type of investment contract. They use Insurance agents and/or brokers to offer these policies to investors, who pay into the annuity. After a set period of time, the investor gets a return on his investment. When the annuity is fixed, the principle is guaranteed. Annuities are a safe way of investing to accumulate wealth, they are tax-friendly and are often used as retirement savings plans.

Several factors are used to structure annuities such as changing the time period of money accumulation, changing the number of income payments and others, etc. A fixed annuity offers security to the investor as the issuing company confirms a minimum interest to the investor for a set period of time beforehand. Often, with a fixed annuity, owners can get a minimum benefit payment as well. Thus, in the case of a fixed annuity, the investor already knows the expected income from the annuity before signing the contract.

A fixed annuity can be funded with one large payment, or with a series of payments over time. Returns on traditional fixed annuities do not rely on increases in the stock market or other equity investments and funds are guaranteed to grow. There is a stable interest return and future cash flow from the annuity to the investor.

There are options for how fixed annuities are paid out. With immediate payment annuities, the investor makes a lump sum premium deposit and immediately receives fixed monthly income payments. This is a good way for an individual to turn a lump sum into a retirement income stream.

With tax-deferred annuities, the investor either deposits a lump sum and accumulates interest over time, or makes payments into the annuity, with the returns being paid out after a set period of time. This kind of fixed annuity is often used as a retirement savings plan. Many individuals fail to plan for their income needs in retirement. In many cases a fixed immediate income annuity can fill the gap.

- Kenneth Nuss

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