How Annuities Work

An annuity represents an arrangement for a person to make periodic payments into a fixed amount. The present value or yield of these payments is the value, the payment will produce at any given time. The initial rate of interest or discount rate is also part of the calculation of how much money can be made from the annuities.


The amount of future payments that can be paid out depend on how long the person has been paying the annuities. If the person has been paying for ten years, the total amount that can be paid out is six hundred thousand dollars. However, if the person has been paying for twenty years, this number will only reach half of the total amount that can be paid out. For example, if you were to make a regular one hundred thousand dollar monthly payment, this amount would be reduced by twenty thousand dollars.

The cost of paying off an annuitant depends on how long it will take to pay off the money. There is no set number of years in which you will have to pay off the annuities. In most cases, you will have to pay the money back within twenty years.

The value and amount of money that a person’s life is invested in determines the rate that is paid. If the investment will provide a profit of at least ten percent, then the investor is called a conservative investor. Those who choose to invest in investments such as bonds, stocks and real estate will receive lower rates of return. However, investors who choose to invest in equities will enjoy a much higher rate of return than a conservative investor. On the other hand, if the investment will only provide a profit of two to five percent, then the investor is called a non-conventional investor.

The payment value of an annuity varies depending on the type of fund involved. Fundable funds offer more flexibility when it comes to the amount of money that can be paid out. Non-fundable fund require a lower rate of interest than fundable funds.

Annuities will give you the security that you will have money to cover your needs at a fixed rate for the rest of your life. This is important because of how expensive medical expenses are becoming.

Another important thing to know about annuities is that they do not require a monthly or annual premium. You do not have to pay for the annuity over the years. However, some people have to pay a small fee before they can cash in the policy. It is best to consult with a financial advisor if you are considering this type of investment.

You have to keep in mind that even though your investments will continue to grow over the years, it will not be as large as if you had invested the money earlier. Investing in annuities can benefit you if you understand the ins and outs.