Annuities Can Be Useful

by Paul Ruszczyk
(Cheshire, Connecticut)

A true annuity allows a person to deposit a sum of money with a bank, brokerage or other financial institution and in exchange, that person will receive a fixed amount per week or month or year for as long as that person lives.

The payments stop when the person dies. The person who deposits the money is called the annuitant. The annuitant is betting that he/she will live a long time and that the stream of income from the annuity will be more - over his or her lifetime - than the amount he/she deposits.

The financial institution is betting that the annuitant will die relatively soon - before the annuity payout exceeds the amount deposited.

These true annuities can be good for a person who wants to guarantee a stream of income for life. Of course, you need to make sure the company is financially strong.

There are many many financial products called annuities which are hybrid and these may be good for some people as well.