What is an Annuity Certain?

by Investing School on June 18, 2012

If your goal is to have a continual stream of payments for a specific length of time you want to invest in an annuity certain. Under the terms of your contract you will determine the number of payments and the amounts. As long as you meet the terms of the contract, these payments are guaranteed to arrive. An additional benefit is that if the annuitant dies before the end of the payment term, the remaining payments will go to the beneficiary or estate.

This arrangement is different than a life annuity which will continue payments for the course of the annuitant’s lifespan. Payments may be made at any interval agreed upon: monthly, quarterly, semiannually or annually. This allows a retiree to anticipate a specific level of income during the payment period, ensuring a certain standard of living.

Other advantages of this instrument include ease of set up and security. Once the account is set up through your insurance company, no financial broker is needed. Furthermore, since this particular type of investment is very stable there is little concern over performance.

From the negative side there are a few concerns. The way an annuity certain is set up you will only receive payments for a given period of time. IF you exceed the term, the fund will no longer provide income. You also lose control of your money since you are dependent upon the fund manager to make decisions for you. Finally, there are usually some significant fees associated with this type of arrangement. You need to find out if those fees are charged on the front or back end or, possibly, throughout the life of the annuity.

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