It is very common for older investors to be drawn to annuities because of the fact that annuities can provide a guaranteed income stream. In the past, many viewed annuities as only being meant for the old and wealthy but today, annuities are successfully being marketed to the young and middle and lower class. The fact is that everyone and not only the old and wealthy need to ensure a form of income during retirement.
The popularity of annuities depends on the strength of the insurance companies by which they are sold. If the insurance company cannot make a strong case for the different annuity products that they sell, people will not purchase them. Since that annuities represent a long-term financial obligation, investors want to make sure that they are investing in an insurance company that is able to withstand economic downturns.
Annuities are popular amongst those who are seeking a guaranteed income stream for the rest of their life because the insurance company that sells annuities makes sure that the investor receives payouts for as long as he lives even if he lives past the time when the amounts in payouts are equaled to the amount he initially invested. Insurance companies are able to guarantee this because they invest the investor’s money in highly rated bonds which generates guaranteed income used to pay the investor on a monthly basis. Based on the premium, the life expectancy of the investor and the annuity rates offered by the insurance company, the amount of money to be paid on a monthly basis is calculated. In many cases, an investor can calculate this amount through the use of an annuity calculator .
Annuities are popular among young investors because annuities provide young investors with the option of adding money to their annuity account on a monthly basis instead of purchasing annuity with a lump sum amount. This type of annuity is known as variable annuity which is riskier than other types of annuities but offers the benefit of compounding.
Research has shown that annuities are more popular during economic downturns especially among investors who believe that they have made a wrong decision in investing in other forms of investment such as stocks and mutual funds. They tend to turn to annuities hoping that this product would be a safer option during turbulent economic times.