Annuities are a great way to diversify your retirement plan. They are a type of insurance, and you invest money into an annuity now to receive payments later. Payments can be made to each month, every three months, once a year, or in one lump sum at a future date. How much money you will receive and how often you receive payments will depend on how much money you invested and how the annuity was set up in the first place.
Fixed vs. Variable Annuities
When you purchase a fixed annuity, you are guaranteed a certain payout when it comes time to collect your money. This is great for a person that wants a steady stream of income every month that they can count on while they are in retirement. A variable annuity does not pay out a set amount, but instead the payments are based on how well the annuity is performing at the time. In a down market, this could mean that your payments could be quite low. In the reverse, if the market is strong, you will be getting more money per month than if you invested in a fixed annuity.
Choosing a Deferred or Immediate Annuity
You can purchase an immediate annuity that begins paying out to you within a short time after your investment, or you can choose a deferred annuity and receive payments in the future. An immediate annuity is often purchased by an individual close to retirement age who is looking for a way to invest some money while making sure they are able to get a payment every month. A deferred annuity is more popular with younger people just beginning to save for their retirement. In this way, the annuity will grow during the time you are not receiving payments.
Benefits to Purchasing an Annuity
With 401k contributions, there is a limit to the amount you can invest each year. There is no limit to the amount of money you can put into an annuity, and the income you earn from an annuity is tax-deferred. The money you earn continues to grow, without you having to pay taxes on it. The only time you are taxed is when you begin receiving payments. Your payments are taxed as income tax, a rate that is likely lower when you are retired than when you are working full-time.
If you are looking at your retirement options, it's time to meet with a financial planner who can tell you all about annuities and how they can benefit you.
Share1 June 2016
My name is Eva, and I have been a personal investment adviser for the past 15 years. I have helped many clients wisely invest their money, and I want to give you some tips I have picked up along the way. Many people discount the use of CDs in investments, and I believe that this is a mistake. Financial professionals agree that CD rates are going to rise, and you can take advantage of that now. This blog will tell you how to find CDs with the best rates, how to build a CD ladder for investment purposes, and why CDs can be better than a savings account.
