One of the biggest challenges of retirement is providing yourself with a steady income stream, to replace your monthly paycheck. Even if you have a company pension or Social Security, that income might not be sufficient to meet all of your retirement needs. If you have a nest egg that has been accruing in value over the years, you can convert at least part of that nest egg into an income stream by purchasing an annuity.
There are various flavors of annuities, but basically, you hand a substantial sum of cash to an insurance company or investment house, which in turn provides you with a monthly check for life. An “immediate annuity” is the simplest of all — these involve low fees, but the amount of your check will not change over the course of your life, so inflation will eventually erode your purchasing power. More complex annuities are indexed to a common market indicator, giving you a chance at enhanced payments; other kinds of annuities allow for a survivor benefit or even a transferrable cash value.
Obviously, purchasing an annuity “weds” you to a particular company for a long period of time; therefore,