A fixed annuity is a product sold by an insurance company that takes an investor's purchase payments and promises a minimum rate of return on the money. Many individuals opt for monthly payouts that last for the rest of their life, no matter how long they end up living. So, if you like the idea of receiving a promised monthly check backed up by a strong insurance company, you might like a fixed annuity. The rate of return is not high, but if you end up living 10 years longer than you ever dreamed, these guaranteed payments will sure come in handy.
Some people want to experience some of the upside of the stock market and, therefore, they buy equity indexed annuities. These products are a little complicated. First, the individual is credited with some of the upside on the S&P 500--if there is a 70% participation rate, he only sees a 7% increase if the S&P 500 moves up 10%. And, there is usually a cap placed on the how much the contract can go up in any given year, period. So, if the S&P 500 goes up 30% one year, the contract would not go up 21% but would , instead, be capped at maybe 10% no matter what happens. The indexed annuity looks better after a bear market for stocks--here's an insurance company promising to give the investor a return on his money and a return of his money. For a safe-money investment that will protect you against outliving your retirement savings, investigate fixed and indexed annuities. LearnHowToInvest
