What Is An Annuity?
An annuity is an investment plan that is designed to help in retirement. Therefore, Annuities are planned contracts between an insurance company and you, the investor. Unlike other retirement plans, annuities do not involve banks, investment companies, or other third parties. Furthermore, Annuities are sometimes casually described as “pensions that you buy.” Meanwhile, this is an effective and simple way of describing the fact that annuities are retirement investments. Hence, you purchase them early in life in order to receive payouts later in life.
To purchase an annuity, there are two primary methods. The first way involves making a large, lump-sum payment to an insurance company. The second way involves paying into your annuity on a regular basis. Usually, payments are typically once a month, but different contracts can be created on a case by case basis.
Then, when you are finally ready to retire, you can switch your annuity from its accumulation — or pay in — period — to the payout period. In some cases, you will be eligible to receive regular payouts for the rest of your life. Upon additional negotiation, you can potentially even extend those annuity payouts to a legally designated beneficiary.
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All annuities fall into four major categories:
While all four types follow the same basic premise, each one has its own set of variables regarding funding methods, tax rates, and payouts. However, regardless of exactly how the annuity functions, certain precautions must be3 taken to extend benefits to a beneficiary in case of untimely death.
When Do You Get Your Annuity?
There are two primary payout options for annuities: immediate and deferred. Within one year after you have purchased an annuity, an immediate annuity will begin paying you back. For people already in retirement, this investment is very good. On the other hand, deferred annuities begin paying you back in a year that is specified in your investment contract. If you are not yet retired, deferred annuities are a good investment.
If you aren’t sure exactly which annuity or payout is best for your financial interests, consult with one of our financial advisors to ask about annuities today.
Annuities can provide potential investors with a wide array of economic benefits, such as a guaranteed lifetime income, as well as security well into retirement.
Annuities are periodic payments paid to you, usually on a monthly basis and often for life. They can be left to your loved one in the event of your death. Once fully funded, the annuity pays a set amount each month for either the life of the contract or your life. The remaining funds can be left to your spouse, child, or other loved one in a lump sum or a monthly payment.