Final answer:
A person who wants to invest a lump sum in an annuity that appreciates with the market should buy a D. Variable annuity. Variable annuities offer the potential for higher returns through investment in mutual funds or similar products, but come with higher risk due to market volatility.
Step-by-step explanation:
If a person wants to invest a lump sum in an annuity that may appreciate along with the market in economic conditions, they should buy a Variable annuity. A variable annuity allows individuals to invest in several different types of investments, typically mutual funds, which can grow and appreciate over time depending on market performance. This could potentially offer higher returns compared to more conservative annuity types, with the tradeoff of higher risk due to market fluctuations.
Saving for old age is an important financial strategy, and individuals often consider various private market options to ensure they have sufficient income. While fixed annuities provide a guaranteed return making them a safer investment, they do not offer the potential for growth that variable annuities do. Since most pensions are "defined benefits" plans that offer a fixed nominal dollar amount per year and do not account for inflation, having a portion of retirement savings in a variable annuity can help mitigate the effects of inflation over time, preserving purchasing power.
Individuals near retirement may lean towards a fixed or deferred annuity for stability, but for those with more time until retirement, a variable annuity could be more advantageous. It aligns better with the high returns and high risk profile characteristic of stock market investments, especially for those who are in a position to withstand the short-term fluctuations for a potentially higher return in the long run.