What Is an Annuity Fund?

An annuity fund is the investment portfolio that supplies the return on your premium. When the insurance company places your money in the chosen investment, your money earns interest. The return depends on whether your annuity is fixed or variable. The continuous stream of payments from this fund can act as a form of income in your retirement.

Kim Borwick, Financial Editor for Annuity.org
  • Written By
    Kim Borwick

    Kim Borwick

    Financial Editor

    Kim Borwick is a writer and editor who studies financial literacy and retirement annuities. She has extensive experience with editing educational content and financial topics for Annuity.org.

    Read More
  • Edited By
    Emily Miller
    Emily Miller, Managing Editor for Annuity.org

    Emily Miller

    Managing Editor

    Managing editor Emily Miller is an award-winning journalist with more than 10 years of experience as a researcher, writer and editor. Throughout her professional career, Emily has covered education, government, health care, crime and breaking news for media organizations in Florida, Washington, D.C. and Texas. She joined the Annuity.org team in 2016.

    Read More
  • Financially Reviewed By
    Rubina K. Hossain, CFP®
    Rubina K. Hossain

    Rubina K. Hossain, CFP®

    Certified Financial Planner™ Professional

    Certified Financial Planner Rubina K. Hossain is chair of the CFP Board's Council of Examinations and past president of the Financial Planning Association. She specializes in preparing and presenting sound holistic financial plans to ensure her clients achieve their goals.

    Read More
  • Updated: May 5, 2023
  • 3 min read time
  • This page features 2 Cited Research Articles
Fact Checked
Fact Checked

Annuity.org partners with outside experts to ensure we are providing accurate financial content.

These reviewers are industry leaders and professional writers who regularly contribute to reputable publications such as the Wall Street Journal and The New York Times.

Our expert reviewers review our articles and recommend changes to ensure we are upholding our high standards for accuracy and professionalism.

Our expert reviewers hold advanced degrees and certifications and have years of experience with personal finances, retirement planning and investments.

Cite Us
How to Cite Annuity.org's Article

APA Borwick, K. (2023, May 5). What Is an Annuity Fund? Annuity.org. Retrieved June 8, 2023, from https://www.annuity.org/annuities/annuity-fund/

MLA Borwick, Kim. "What Is an Annuity Fund?" Annuity.org, 5 May 2023, https://www.annuity.org/annuities/annuity-fund/.

Chicago Borwick, Kim. "What Is an Annuity Fund?" Annuity.org. Last modified May 5, 2023. https://www.annuity.org/annuities/annuity-fund/.

Why Trust Annuity.org
Why You Can Trust Annuity.org
Annuity.org has provided reliable, accurate financial information to consumers since 2013. We adhere to ethical journalism practices, including presenting honest, unbiased information that follows Associated Press style guidelines and reporting facts from reliable, attributed sources. Our objective is to deliver the most comprehensive explanation of annuities and financial literacy topics using plain, straightforward language.

Our Partnerships, Vision and Goals

We pride ourselves on partnering with professionals like those from Senior Market Sales (SMS) — a market leader with over 30 years of experience in the insurance industry — who offer personalized retirement solutions for consumers across the country. Our relationships with partners including SMS and Insuractive, the company’s consumer-facing branch, allow us to facilitate the sale of annuities and other retirement-oriented financial products to consumers who are looking to purchase safe and reliable solutions to fill gaps in their retirement income. We are compensated when we produce legitimate inquiries, and that compensation helps make Annuity.org an even stronger resource for our audience. We may also, at times, sell lead data to partners in our network in order to best connect consumers to the information they request. Readers are in no way obligated to use our partners’ services to access the free resources on Annuity.org.

Annuity.org carefully selects partners who share a common goal of educating consumers and helping them select the most appropriate product for their unique financial and lifestyle goals. Our network of advisors will never recommend products that are not right for the consumer, nor will Annuity.org. Additionally, Annuity.org operates independently of its partners and has complete editorial control over the information we publish.

Our vision is to provide users with the highest quality information possible about their financial options and empower them to make informed decisions based on their unique needs.

Annuity funds determine your rate of return and ultimately your guaranteed income payment amount. This is why it’s important to understand the difference between annuity types and how annuities work. It’s also helpful to have a foundational knowledge of the stock market and other elements of financial literacy, as annuities are only one aspect of a comprehensive financial plan.

Where Does Your Premium Go?

Annuities are categorized as either immediate or deferred and either fixed or variable.

In all cases, you pay a premium for your annuity. The insurance company invests your premium, along with the premiums it collects from hundreds of other annuity owners, and invests it.

Insurance companies are what are referred to in the investment world as “institutional investors.” Institutional investors invest huge sums of pooled money in stocks and bonds to generate returns large enough to allow them to pay out the income streams they guarantee.

The type of investments the insurance company puts your money in depends on the type of annuity you purchase.

Interested in Buying an Annuity?

Learn about the different types of annuities and find out which one is right for you.

Fixed Annuity Funds

Fixed-rate annuities provide a fixed payment amount determined in part by the level of risk the company is assuming, as well as the performance of the fixed securities market and the annuitant’s life expectancy.

Single premium immediate annuities (SPIAs) begin paying out within a year of purchase and their payment amounts never change. Deferred annuities begin paying out at a later date and include an accumulation period during which the account value grows as interest is compounded.

The annuity fund for a fixed annuity comprises bonds and other fixed-rate investments into which the insurance company invests the money. Although the fund won’t generate high returns, your money is safe and the insurer will typically guarantee a minimum interest rate for the life of the contract.

Variable Annuity Funds

Variable annuity funds are less stable because they consist of market-based investments. The insurance company gives you control of the subaccounts — the underlying portfolio of funds — allowing you to choose from a selection of bonds and stock options, including money market funds, mutual funds and bonds.

Because variable annuities are tied directly to the performance of the stock market, your rate of return can fluctuate, meaning it is possible for an annuity holder to lose money with a variable annuity.

Differences for fixed vs variable annuity funds

Riders and Annuity Insurance

Annuities are, in fact, a form of insurance. The annuity contract essentially transfers the risk of you outliving your money to the insurance company. Variable annuities, however, offer less longevity insurance in exchange for growth potential.

For savers and investors hoping to maximize the benefits of this financial instrument, annuities can be customized by purchasing riders that protect against the negative impact of the market. You can think of these additional provisions as insurance within insurance.

For example, a return-of-premium rider can be added to an annuity contract to ensure that the initial investment will not be lost. If you bought a $200,000 annuity and died after collecting only $50,000 of the original premium, this rider would guarantee that your beneficiary would receive the remaining $150,000.

Be aware that the addition of riders or annuity fund insurance will be accompanied by fees that will lower your income payment amounts.

The type of annuity fund — hence, the type of annuity — best suited to you will depend on your financial objectives. Just as you would weigh your goals with your risk tolerance when making investment decisions, you should weigh these factors before deciding on which type of annuity to buy.

Advertisement

Connect With a Financial Advisor Instantly

Our free tool can help you find an advisor who serves your needs. Get matched with a financial advisor who fits your unique criteria. Once you’ve been matched, consult for free with no obligation.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: May 5, 2023

2 Cited Research Articles

Annuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.

  1. Collins, P.J. (2016). Annuities and Retirement Income Planning. Retrieved from https://www.cfainstitute.org/-/media/documents/article/rf-brief/rfbr-v2-n2-1-pdf.ashx
  2. Kitces, M. (2014, July 2). Why It Rarely Pays To Wait On Taking Withdrawals From A Variable Annuity GLWB Rider – A Case Study. Retrieved from https://www.kitces.com/blog/why-it-rarely-pays-to-wait-on-taking-withdrawals-from-a-variable-annuity-glwb-rider-a-case-study/