Annuities and Retirement Planning

Annuities are what....?

Annuity products come from major life insurance companies. They are a mix of investment and insurance, but are mostly considered when a person wants to build some cash for a long term goal, or to provide a monthly payment. Lots of people think about retirement when they consider these products, but some consider them for other savings goals.

Where Does Annuity Money Come From?

So how does the cash account get funded? An annuity will need to have a cash value in order to generate growth or income.

An immediate annuity is funded by one large sum at the start. Consider a retiree with a lump sum payout or a person who has inherited cash from a family member. This product, as the name implies, begins to make income for the owner right away.

Deferred annuities do not pay out right away. In fact, the owner may have to pay a penalty if he or she takes out cash before the term that is specified in the contract. There may be exceptions for this in the case of a severe illness, etc. Some may be funded with a large payment, or they may accept cash contributions made over a period of years. These are intended for people who are trying to plan for an event that is some time in the future.

Payouts - You can also find a variety of payout options. Some common examples are lifetime, joint survivorship, or 10 years. Their are many combinations of this too. For instance, some may have a lifetime payout with a guaranteed payout of ten years. That means that a beneficiary would collect income if the owner passes away before a decade ends.

If you are not sure that you will need the income, consider a flexible payout option. You can use this account to put aside money that could be used for an emergency if needed, or can be left to heirs if not needed.

Many people like annuities because of the favorable way that the IRS tax code treats them. They can grow in a tax deferred manner. They may be qualified or unqualified, which will affect the tax treatment of income payments.

Another advantage is the safety of fixed products. Fixed products may pay at a contract rate, or they may be pegged to a market index.

Take a large and famous market index like the S&P 500. When the market is up, the account will earn interest at a rate that follows that market rate. During down years, the account will be guaranteed to stay even, or even to earn a guaranteed interest rate.

Now that you understand a little bit about annuities, you probably want to know how long you can get payments for. You probably also want to know how large those payments will be. Of course this depends upon your accumulated cash value, growth rate, and the type of product you have.

We want to help you find the annuity products that can help you reach your goals. Use our Free Online Annuity Quotes to find the best retirement plan for your own needs. For more information, visit here: Explain Annuities

Annuity Shopping Guide

Annuities can be a wonderful investment vehicle for everybody from young savers to senior citizens. They offer the advantage of tax deferred growth, and some tax qualified annuities even allow you to tax defer your contributions. Furthermore, man annuities offer a guarantee on your principle, and some with even a stated return rate. In addition, the top end can be tied to common stock market indicators, so your average returns will be much higher than with a savings account or CD.

Furthermore, a younger person can make periodic contributions to a deferred annuity to build wealth for retirement. A retiree can purchase an immediate annuity to roll over funds and receive monthly payments. Since annuities are flexible, offer good returns, investment safety, and tax benefits, they have become a popular investment.

However, you still need to shop carefully. Some annuities are front loaded, which means that your principal will decrease the minute you invest. If they are not front, loaded they wil certainly come with a surrender charge. In other words, you will incur a charge of a decreasing percentage of your investment if you withdraw your funds before an agreed upon length of time has passed.

Furthermore, even though many annuities guarantee your principal, some do not. Make certain that you understand which type of annuity you are buying before you purchase. Your stage in life, the amount you have to invest, and your risk tolerance will determine which product is right for you.

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