What is an Annuity? - Dabbler.com

What is an Annuity?

An annuity is a type of financial and insurance product. An annuity may be part of a person’s retirement planning and overall strategy. An annuity allows you make investments now, and take out payments later.

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The income that you make from the annuity can be paid out in a variety of ways. The way that you choose to have your annuity paid out depends on your needs at the time, whether it be a lump sum required or monthly payments over time. The size of the annuity payments that you receive depends on the length that you have been contributing to it. The amount of money that you receive depends on what type of annuity you have chosen. A fixed annuity offers a guaranteed payout and a variable annuity offers you a payout stream.

There are different types of annuity investments available:

Immediate: An immediate annuity allows you to start receiving payments from your annuity within thirty days.

Deferred: A deferred annuity allows you to receive payments later in time when you need it. You can contribute by putting in a lump sum of money or you can contribute monthly. That money can then become an annuity which can be used as a supplemental income source.

Benefits

Annuities are often used by investors who want to maintain an income once they retire. Annuities are based on investments. There are many benefits that are offered by annuities. The greatest benefits are the tax advantages. An annuity can allow you to defer paying your taxes. Your investment will compound tax-free, allowing you to save more quickly. Annuities are also beneficial because they do not limit how much contribute. This means that you can easily make up missed contributions without being penalized. Annuities can help to give peace of mind as populations are living longer and may run out of their retirement funds. Annuities can allow you to generate a steady stream of income during your retirement years, which can eliminate financial worries.

Disadvantages

An annuity can allow you to be in charge of your retirement income, but you should also be aware of the risks. If you choose a variable annuity the return of your investment could fall. An indexed annuity ties investment returns to a financial market index. This gives the owner some protection, but they also can expect a minimum return based on low interest rates. You should always do proper research to determine whether or not buying an annuity is the right choice for you. Annuities may have terms that do not meet your needs, or may be too expensive with all of the fees involved.

How to Buy an Annuity

If you have done your thorough research on annuities and have decided that it is the right strategic financial plan for you, you will want to know how to purchase one. Purchasing an annuity involves locating a licensed insurance broker. You can go through an insurance agent or an independent annuity broker. You should try to get a few quotes in order to get a competitive figure that you can feel confident in. Also look to work with a broker that you trust- make your needs and goals known so that you can work together to make your financial future bright.

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