Are you looking forward retirement and do you have all your money saved up in saving accounts that give low interest? Then you must be looking forward to an alternative source of income so as to pursue the same standard of life style post retirement. You must be careful not to indulge yourself in any kind of investments that are risky. In such scenarios, an annuity is a perfect solution for you that can provide you with a key to a secured, guaranteed income after retirement.
An annuity is basically a contract that is signed between an insurance company and an individual. The contract mentions that the individual must pay an amount of money on a regular basis within a certain period of time. This is how you get to invest your money. Once you retire from your employment, you start receiving money in the form of regular equal payments from the insurance company for the remaining of your life.
Annuities are termed as complex and difficult as a form of financial vehicle. However, you need not be an expert of finance to grasp the way an annuity works. These are one of the best ways to have a great future. The proper and appropriate combination of annuities can give a good income that eventually comes from your savings. Therefore if you decide to invest in lifetime annuities, here are the following things that you need to take care of:
You must identify the different kind of annuities and then decide on the kind of annuity that suits your requirement. There are a variety of options that depend on different factors like the payout time, liquidation option and the type of investment that you would do. Depending upon the payout timing, you will get deferred as well as immediate annuities. In case of immediate annuity, you would start receiving immediate payments once you invest. In case of a deferred annuity, you will start receiving your payments after retirement.
There are also variable and fixed annuities that are dependent upon the investment types. Fixed annuities give you a guaranteed income and the variable annuities offer returns based on the performance of the market. Depending on the various options of liquidation, there are also annuities available that deal with or without penalties on withdrawal.
There are however certain pros and cons of an annuity. Therefore, it is a wise idea to know and understand them before investing money in it. This minimizes any complexities that are involved in an annuity investment. The advantages of lifetime annuities are:
It provides a regular source of income.
It provides you with a tax free growth on your investments.
Annuities are supported by the state guaranteed funds, which are why even if the insurance company fails to return your payments; your money is not lost.
There are several disadvantages of lifetime annuity which are:
Annuities definitely provide a regular income, but it is of no use if you need immediate cash while in an emergency.
If you withdraw any amount before the maturity of the annuity, that amount is subjected to a tax penalty which might be up to 10%.
Therefore, do a thorough research before investing in lifetime annuities.
