If you’re looking for a financial security plan that will ensure a steady income in retirement, an annuity may be the right choice. Annuities are contracts between you and an insurance company that require them to make payments to you either immediately or at some point in the future. This payment can come as one lump-sum or in installments over time. In this blog, we’ll explain what annuities are and how they work so that you can decide if they are the right option for your financial security plan.
Types of Annuities
There are two main types of annuities: fixed annuities and variable annuities. A fixed annuity is a contract between you and an insurance company where the insurer agrees to pay out a specific amount each month for a set period of time, usually thirty years or until the death of the beneficiary. The amount paid out is based on the initial deposit plus interest earned over time. On the other hand, variable annuities offer more flexibility as they allow you to choose from different investment options and determine when payments start and stop. However, because these investments carry more risk than fixed annuities, they may not always be suitable for everybody.
Benefits of Annuities
Annuities provide a number of benefits including tax deferral on income earned through investments, death benefits, potential growth in value depending on underlying investments option chosen, and access to money without penalty if needed before retirement age. Additionally, many states also offer tax incentives such as deductions from state taxes on money put into an annuity account within certain limits. An added bonus is that money used for buying an annuity doesn’t count towards your taxable income during contributions!
If you’re considering investing in an annuity as part of your financial security plan for retirement, it’s important to understand all of your options so that you can make an informed decision about which type is best suited for your individual situation. Whether you decide on a fixed or variable option – or both – understanding how they work and their associated benefits will help ensure that you get the most out of your investment now and in the future. Ultimately, this knowledge will help set up your retirement fund with confidence knowing that it will be there when needed most!
Source: Investor.gov
The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. It is only intended to provide education about the financial industry. Please consult your certified financial advisor.