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Annuities
Annuities
What is an Annuity?
An annuity is an insurance product that pays out income, and can be used as part of a retirement strategy. Annuities are a popular choice for investors and savvy successful people who want to receive a steady income stream in retirement.
Annuities work this way: you make investments in the annuity and it will make payments to you on a future date or a series of future dates. The income you receive has many benefits and can be dispensed out monthly, quarterly annually or even in a lump sum payment. There are many factors that determine the size of your payments, the length of your payment period and even the frequency of pay outs.
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How Do Annuities Work?
Annuities are useful retirement planning tools. You can choose to receive payments for a set number of years, almost like term insurance, or you can receive payments for the rest of your life. How much you receive depends on the performance of your annuity’s investments, so a greater variety of annuity investments is best.
Money that you invest in an annuity grows tax-deferred. When you eventually make withdrawals, the amount you contributed to the annuity is not taxed, but your earnings are taxed at your regular income tax rate.
Types of Annuities
There are two basic types of annuities Deferred and Immediate. Annuities can also be either fixed or variable depending on whether the payout is a fixed sum, tied to the performance of market conditions or performance of group investments, or a combination of any of the above.
What’s your choice? With an immediate annuity you begin to receive payments soon after you make your initial investment. The closer you are to retirement age this is one type you might consider.
A deferred annuity means that your money is invested for a period of time until you are ready to begin receiving payment withdrawals which is typically when you are in retirement. Deferred annuities can also be converted into immediate annuities when the owner wants to start collecting payments.
