You can purchase an annuity policy from an insurance company for a specific length of time, such as a 10- or 20-year period. An annuity is essentially an investment that grows in value at either a fixed or variable rate.
If you purchase a fixed annuity, you will earn a pre-specified minimum amount of interest on your investment. If you purchase a variable annuity, you control how you want the annuity amount invested, and your rate of return will depend on how well your investments perform.
When buying an annuity, you can choose to make a one-time lump sum payment towards the annuity amount. You can also spread out partial payments towards the annuity amount over an extended period.
Annuities provide you with a tax deferral on any earnings your investments make. Certain annuity policies also ensure that your death beneficiary will receive a guaranteed amount of your annuity.
The U.S. Securities and Exchange Commission (SEC) regulates variable annuities. However, the SEC does not have any regulating power over fixed annuity policies.
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