Building a stable nest egg with a diversified mix of asset classes is the ultimate goal when planning for retirement. There are various strategies and products you can invest in to help establish, and potentially increase, your income in retirement. A common one is to purchase an annuity. Annuities have the potential to provide a steady stream of income, but if you don’t shop carefully, you could risk losing your investment altogether.
Before purchasing an annuity, it’s important to understand how these products work. Annuities are contracts issued and distributed by an insurance provider. They have two different phases: The accumulation phase and the annuitization phase. During the accumulation phase, the investor funds the annuity either with monthly payments or a lump sum. The money then grows depending on the type of annuity it is. During the annuitization, or payout phase, the investor receives that money for a fixed time or the remainder of their life. These products are designed to provide a steady stream of income to retirees who fear they may outlive their assets.
