What Are Annuities?

Video Transcript

"Hello, my name is Mark Griffith. This is a short introduction into how annuities work. Annuities are a kind of investment where you pay a fixed lump sum, up front, and receive, in return, a stream of income. Usually a fixed amount each year, unless it's variable, in which case a varying amount each year. The first thing to consider is, do you want the money to start flowing immediately, or do you want to defer. Obviously you will get a higher amount if you defer. It's best to talk to a broker about what kind of annuity to get, because lots and lots of things differ between different terms. For example, the joint and last survivor contract means that the last two people named as beneficiaries will get paid as long as both of them are alive. The fixed sum version--this means that if you die, your beneficiaries--for example the people you leave your estate and your will, will get a fixed sum. Then there's another version which means that the payments will simply carry on for a fixed number of years, going, again, to your beneficiary. So there's a variety of ways in which this works. The annuity also gives you tax advantages, especially in the United States, but if you start to withdraw money from the fund before you get to the age of fifty-nine and a half, this can reduce the amounts that you get after that age. As ever, consider the different kinds of investments you're going to make, consider whether they're risky, whether they're high risk or low risk, and always talk to a broker, talk to an agent, to find out which kind of annuity is best for you--because there's a very, very broad range of contracts and possibilities out there. Good luck."