Annuities over the years haven’t had the best reputation due to its complexity and hidden fees. However, due to the current economy these annuity retirement products are now becoming more important to an individual’s retirement planning.
An insurance agent and not a broker firm offer annuities. These types of products can mainly be compared to a lifetime pension plan. One of the amazing benefit about annuity is that it will pay you a monthly check for life. This means that your retirement account will not be depleted and you will always receive an income off the amount you put into the annuity. This is contractually guaranteed by the insurance company, so even if you live to be 105, you will always be collecting a monthly check from your annuity. Another benefit of an annuity is that interest earned are tax deferred. Since the IRS sees annuity as a retirement account it is treated as such, and not taxed. Below are the type of annuity.
This kind of annuity is just like CD’s whereby you are guaranteed to earn a given amount of percentage for a certain duration. After the expiry of the period, the insurance company reset the rate of annuity to annually. In most cases, the rate is determined using consumer price index. The only major difference between CD and annuity is that annuity guarantees income for life and it is tax deferred.
This type of product is different and unique whereby you are correlated with a certain stock market (mostly S&P) and have guaranteed minimum. This means that your minimum will remain unaffected even if the market crashes. If the market thrives, your minimum is increased. The rate of returns are mostly based on an individual chosen options on how it will be measured, it can be monthly, yearly or quarterly depending on the insurance company and/or you. This implies that the longer the time the higher the rate.
Immediate Income Annuity
This is a safe vehicle, which pays an income for the rest of your life after you have pay one lump sum. You are required to pay a lump sum, which is worth your income, and your life style. This type of annuity is good for people who want to retire in less than 6 years and they did not have annuity before.
Unlike indexed and fixed annuities, which have a fixed earning potential. Variable annuity correlates with a particular investments or markets within the annuity. You should know that, it does not have all the income and tax benefits. Although it’s like mutual fund the value will fall and rise depending on the investments within the vehicle. This means that your principal is not in any way protected.
Just as the economic environment is changing, so should your retirement account. Protect yourself and take care of yourself after you have retired with annuity. No matter what one may say or think annuity is the way forward to all your retirement needs.