Who can Benefit from an Annuity?
If you’re planning ahead for retirement, it’s time to consider buying an annuity. An annuity is best for people who have already maxed out their other plans and want some extra income for greater financial security. This insurance is best for people with high income levels, as it takes an additional chunk out of your income. The payments typically go on for years, especially if you start saving early. But the additional income provides a good cushion when you retire. It’s also a good way to ensure that you have extra cash in case the unexpected happens.
How does an Annuity Work?
The process can differ, depending on which type of annuity you choose. But generally speaking, when you invest in an annuity, you either pay all at once or in a series of payments for the next several years. Your payments gradually acquire interest, which is usually tax-deferred. Once you retire, you can start receiving income payments. Some insurance companies will waive surrender charges if you withdraw the money early due to an unexpected event or emergency.
What Types of Annuities are Available?
An annuity can be categorized in a few different ways. If you choose an immediate annuity, you’ll start receiving income payments soon after your first payment. You can decide whether you want to receive payments for the rest of your life, or over a specific amount of time. Conversely, if you choose a deferred annuity, you’ll make payments over a period of several years. The payments will accrue interest, increasing your pool of income. Once you retire, you can start receiving your income payments.
Your money can also be invested in different ways. With a fixed annuity, your payments will be placed in fixed-rate investments, like bonds. This usually guarantees a minimum interest rate.
What are the Benefits of Investing in an Annuity?
If you want extra financial security when you retire, an annuity is a great way to add a boost to your funds. Accidents and unexpected events can occur after you retire–illnesses, injuries, sudden deaths, etc.–and accident insurance might not be enough to cover the cost. And if the unexpected doesn’t happen, you can enjoy the extra income that allows for a better quality of life.