Day-19 - Basics of Annuity

Dependable retirement income was a challenge even during the early Roman period! 

So they designed a brilliant solution. "The Annua" means Annual stipend.

Wealthy Romans made one single payment into this fund to receive annual payments for their lifetime or a certain number of years.

They even had a system based on which the purchase price of the Annua was determined. It was a Human life expectancy table designed by Jurist Domitius Ulpianus.

By Gamandi - Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=28397198

This system was also used to compensate Roman soldiers who had typically spent long years fighting for the empire.

Annuity

Today this is known as an Annuity.

It is the exact opposite of life insurance. 

While life insurance pays in the event of death, An annuity pays you a regular income as long as you live. 

During the great depression(1929-1939), the stock markets were considered very risky. People preferred to invest in annuities as they were a dependable source of income than the stock markets.

Even in our present world, there is so much uncertainty, and the last thing you would want is the uncertainty of income during retirement. 

It would be wise to include the certainty of an annuity in your portfolio.

Types of Annuity

The two broad classifications are;

Immediate Annuity: Starts paying you a regular income almost immediately. (Next Month, Quarter, or Year)

It is ideal for people who are retired and are looking for a dependable, regular income. 

Deferred Annuity: Suitable for people who want to receive income in the future.

You can also get a variable annuity linked to a mutual fund or an Index fund. However, I am not a big fan of variable or Indexed annuities.

For me, they defeat the idea of an annuity. 

Knowing about Annuities is the task for Day 18 of the Win With Money Challenge.

Explore more about them and find out if they suit your situation. 

Just remember that Multi millionaires and Billionaires may not need safe, secure income and protection from bear markets. But you do.

See you tomorrow.