The word “annuity” refers to a series of payments made to a person (called the “annuitant”) for life or for a set number of periods. In essence, you’re handing over a lump sum of money to an insurance company for a stream of payouts over a certain period, usually your lifetime. To some effect, you’re shifting the investment risk to the insurance company, but at the price of less flexibility and potentially lower returns on your investment. Annuity covers your investment risk at the cost of your investment return. Is there any other way to get a high return, as high as 8 % on fixed annuities.

In a world of increasing life spans, disappearing pensions, and crashing markets, immediate annuities almost look sexy. An immediate annuity is an insurance policy against a man-made disaster: that you run out of cash. Most of the retirees are looking for retirement income solutions that grows the income stream over the course of a lifetime to help offset the cost of inflation. Hence, we need to focus on annuities that provide Income AND Growth guaranteed retirement solutions…where the income component of your annuity actually increases as you age.

How to Choose the Best Annuities:

One of the best way to choose safe and good rate of return on annuities is to check the credit rating of the respective insurers. Ratings from Moody’s, Standard & Poor’s, and A.M. Best will provide an insight about the insurers worthiness. If they were to go bankrupt you may lose a large portion of your investment. Also, make sure to understand the fees that the annuity is charging. Once we had our safe-insurers list, we then ranked them by the size of their monthly payouts. To do this, we needed to create a hypothetical annuitant, since the size of the checks hinges on the insurer’s calculation of how long you’ll live, plus some other factors. We chose a 70-year-old man investing $100,000. (If you’re under 70 or a woman, your payout would be less than the figures below, since insurers expect you’ll live longer and collect more payments. Conversely, an 80-year-old would get larger payments.) Longevity is an important factor. As people live longer, insurance companies expect to pay out more, in effect lowering the returns that pensioners can get.

The pros are that you won’t outlive the income the guaranteed payments provide, so you don’t have to worry about market performance (which for conservative investors is a great concept), and the longer you live, the better a deal it is (or, the more payouts you will receive).

On the negative side, fixed annuities have almost no flexibility once they’re purchased, and with such a large investment, that can be a scary thought for some retirees. When purchasing a fixed annuity, you’re also tying up a large portion of your assets that could potentially be left as an inheritance — if you die prematurely, your investment could be gone entirely, depending on the type of annuity you choose.

Hence, the annuity that you invest in should be higher that the rate of inflation or at least such that it is able to cover the rate of inflation. Of course, it’s also wise to consult with your financial adviser to make sure that this purchase makes sense within your overall financial picture.