Are you looking for a different way to gain money when you’re older, besides the usual 401k plan? Buying annuities can be a better alternative or an addition to other long-term monetary plans you have implemented. This article will provide some key information regarding annuities for dummies.

After buying annuities, people generally demonstrate a certain unique loyalty and commitment to their purchases. In fact, around 93% report they still own their first annuity. People generally buy an annuity to help them manage their incomes in retirement, because it provides them with a steady stream of income for a set amount of years, or until it runs out.

First off, what are annuities, exactly? They are a complex investment and/or insurance product that is sold by an insurance company.

Many people will try to deter you from buying annuities, on the grounds that insurance agents collect a large commission, or that you may not qualify for an annuity. Those with an annual household income below $100,000 may not qualify for purchasing this product (eight out of 10 people do not qualify), yet it can be a great investment decision if you do qualify.

Before you purchasing an annuity, you should figure out why you are buying it and what you want it to do for you. Ask yourself these three questions:

What type of annuity am I buying?

An immediate annuity is when you pay an annuity lump sum payment in order to start receiving monthly fixed or variable incomes. You should purchase this type if you are looking for guaranteed income and want an income that will last for the rest of your life.

Deferred annuities require a deposit to an insurance company, which will then cause the money to grow, tax deferred, until you reach a certain age (most likely around age 60) or a certain date is set. Fixed annuities provide you with a specific rate of return that the insurance company guarantees you.

A variable annuity, on the other hand, is for those who want a tax deferral. This type is not recommended for those trying to meet short-term goals because there can be substantial taxes and insurance charges that apply if you withdraw your money early.

Why are you buying the annuity? Some people don’t understand why they are buying annuities, so make sure you do some research first. If you have already explored other investment or retirement options, then this may be the best choice for you.

One benefit of this investment plan is that you are guaranteed a minimum level of income during your retirement every month, as opposed to receiving a lump sum of money you won’t know what to do with.

What happens if I die? You must name a beneficiary for your annuity if you decide to purchase one. Most will also offer death benefits to family members. Understand that those inheriting the annuity after you have passed must pay an income tax no matter what is left of the annuity.

Talk to a trusted insurance company or lawyer about whether or not this retirement investment option is for you.