Like most of my articles, someone asks me a question and I start writing. This time the question seemed familiar. In March 2019, I received the same question. Since then, not much has changed in annuities, but the desire for safe and secure investments has grown.

Sometimes referred to as a life annuity, an annuity is an insurance contract you purchase that guarantees you鈥檒l receive a specified amount of money every month for the rest of your life, no matter how long you live.

One way to think about annuities is that they kind of provide the opposite type of protection as life insurance. Most people buy life insurance in case they die too soon, while annuities provide a safety net for living a long life, which many people find very comforting. As we get older, nobody wants to stress at each passing birthday, happy to be alive but worried about running out of money. An annuity can help ease those concerns.

An annuity is a way to receive money in retirement either by saving money over a period of time or by purchasing an annuity with a lump sum. It鈥檚 a contract between the owner of the annuity and the company issuing it. You buy the annuity, and the company pays you in installments. An annuity provides a way to give yourself a paycheck in retirement.

You can choose two different types of annuities. Immediate annuities are purchased with one lump sum, and you start receiving payments right away. Most people buy these after they have already retired, to replace the paycheck they received while working. Deferred annuities are purchased when you don鈥檛 need the income today. You can purchase your deferred annuity with a lump sum or periodic payments and choose a time in the future to start receiving payments. An added advantage of a deferred annuity is how it is taxed. The growth on a deferred annuity is tax when you receive the growth. This means taxes can be deferred for years, enabling you save more.

Most people who purchase deferred annuities tend to be risk averse. People who buy immediate annuities are close to retirement and are looking for a way to create a steady income stream right away.

Remember an annuity is only as good as the company that issued it. Ask questions. Most annuities have surrender charges. Ask how high they are and how long do they last. Annuities have guaranteed interest rates. These rates are good for periods of time. Ask how long the interest rate will last. Ask when and why the interest rate will change. Ask what is the lowest rate the annuity will pay. Ask does the issuing company participate in your state guarantee pool. Insurance companies are rated based on their ability to pay claims and honor their contracts. Only deal with a company with high ratings.

I am always looking for things to write about. If you have a question, e-mail me at [email protected].

Bob Hollick is a State Farm Insurance agent based in Washington. His column appears every other Friday in the Observer-Reporter.