Explaining The Different Types Of Annuities
There are various ways for an individual to plan for their retirement. Annuities are one of the retirement vehicles that have been used for centuries to save for one’s future. An annuity is a contract that involves you and an insurance company wherein you will be paying them a considerable amount of your money in exchange for regular streams of periodic payments from the company that you may not outlive during your retirement years. The money that you have invested in the annuity will grow tax-deferred. This means that the interest you receive from the annuity is free from income tax until money has been withdrawn.
Annuities have different types that can be categorized in a number of ways. To begin, we are going to categorize annuities first according to when payments will begin. In this category, you have the deferred and immediate annuities. A deferred annuity will start making payments to you at a future date, usually by the time you retire. With this annuity, you can choose to invest either a lump sum or make periodic payments. Deferred annuities will allow your money to grow even more which will mean that you will receive higher payments.
With an immediate annuity, as its name implies, payments will be received immediately after money has been invested into the account. They are usually purchased using a single lump sum payment. If you decide to purchase an immediate annuity, you can select how long you are going to receive the payments. You can choose between a term-certain annuity, where you will receive steady flow of income for a certain number of years, or a lifetime annuity, wherein your payments will continue until the time of your death.
Annuities can also be categorized based on where your money will be invested. Under this are the fixed annuities and the variable annuities. Fixed annuities are the considered to have the lowest risk among all the other annuities. The money that you have invested is guaranteed to earn a fixed rate of return. Your money is not affected by the changes in the stock market but it is important to be sure of the financial strength of the company selling the annuity to you before making the purchase. On the other hand, variable annuities will allow you to invest in a variety of portfolios which are call sub-accounts. The sub-accounts are linked to the performance of the stock market.
In conclusion, annuities are a great way to save and guarantee you financial stability for your retirement. Knowing the different types of annuities will help you know what type will appeal to your retirement plans.