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Annuities are insurance merchandise in which the annuity-holder makes a payment or a number of payments to the corporate providing the annuities, in exchange for a guaranteed stream of income for the rest of the their life or up to a pre-agreed expiry date of the annuity.

Based on their returns (the stream of income from an annuity), annuities are classified as either fastened rate or variable rate annuities.

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In fastened rate annuities, the annuitant is guaranteed of a fastened rate of income from the annuity, irrespective of the performance of the investments into that the annuity premium is invested. On the opposite hand, returns from variable annuities vary relying on the performance of the investments into that the annuity premium is invested. Both fastened rate and variable annuities have their distinctive blessings and downsides.

The main advantage of fastened rate annuities lies in their security and low risk. This is to say that irrespective of the performance of their underlying investments, the annuity-holder is always assured of an eternal stream of income, usually for a lifetime. Thus fastened rate annuities will be ideal for retirees and different risk-averse people who do not want to subject themselves to the pains of investment. With fixed rate annuities, you get a cheap come back on your annuity investment without exposing yourself to the investment risk.

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Conversely, the draw back to fastened rate annuities is the actual fact that they offer restricted area for growth, and no matter how well the investments made using your annuity premium performs, you still get a mounted come back from it. Moreover, opting for a fastened rate annuity could bar you from benefiting from some tax deferment benefits available to variable annuity holders.

Turning to variable annuities, their main advantage is the area for growth they offer, that may potentially translate into significantly higher returns in the future. Moreover, returns from variable annuities are often subject to tax deferment benefits. The draw back to variable annuities is the very fact variable rate annuities expose the annuity-holder to the investment risk, and if the investments made using the annuity premium perform poorly, the annuity holder could finish up seeing a significantly diminished stream of income from the annuity.

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Now such a diminishing stream of income is most likely the very last thing you would wish to listen to in the middle of your retirement, especially if the annuity is your solely source of steady income at that point.