When considering whether or not to invest in an annuity, age is perhaps the most important factor. A popular investment guideline is to match your "safe investments" with your age. At age 25, low risk investments (I.E. CDs or Bonds) should roughly make up 25% of your portfolio, and higher risk/reward investment such as stocks or mutual funds should be around 75%. Each year you would increase the percentage going to low risk and decrease your higher risk investment. Younger investors should focus more on higher returns simply because they will have time to make up any losses that may occur. However, when a person is about to retire, maintaining the principle becomes much more important. A fixed annuity is quite ideal for those investors who are about to end an active working life. Since they can’t look forward to paychecks every month, the need for a secure and assured earning arises.

Typically when opening a fixed annuity account, a lump sum payment, also known as a minimum requirement, is needed. This will range anywhere from $2000 to $25,000 depending on the specific policy. Once the account is open, additional deposits may be made, but not required. The earnings and interest rate will depend on the type of annuity purchased and the set rate at that time.

There are three main types of fixed annuities, each designed to fit different needs. The three types are immediate annuities, deferred fixed annuities and fixed indexed annuities. As the name itself suggests, an immediate annuity provides income to the policy holder immediately. A lump sum payment is made to the insurance company, who in turn sets a guaranteed income amount that will be paid the client each month. Deferred fixed annuities (you guessed it), defer payment for a set amount of time, typically five to ten years. During the deferral period, the account will grow tax-deferred at a predetermined interest rate. Fixed indexed annuities are designed similarly to deferred annuities, but instead of a fixed interest rate, the interest rate is calculated with results from in index such as the S & P 500.

In most of the cases, annuities serve the income needs while in retirement. However, they can also be used to perform other purposes as well. It can serve as a source of income to recipients of the investor and specific funding which includes education, alimony and other expenses.

There are a number of companies to choose from when considering an annuity. It is extremely important to research their credibility and financial strength before making any investments. The fees charged by these companies come second on things to watch out for. Similarly it’s advisable to understand the surrender charges and withdrawal options as set by financial companies.