Annuities: Description of Annuities

Most people worry about dying too soon. Have you ever considered worrying about living too long? An annuity can ease those worries and financially provide for you in the event that you live longer than you expected.

There are two main types of annuities: immediate and deferred:

  1. An immediate annuity is paid in one payment and the annuitant can start receiving payments almost immediately. You can choose between fixed or variable payments.
  2. A deferred annuity can be paid in one payment or several premiums over a period of time. Your payout will be deferred for at least one year after all payments have been made. Typically payouts do not start until several years later. Your payouts can be fixed or variable.

You can combine the features of an immediate and deferred annuity by using part of your investment for monthly payments to you and another portion to earn interest or be invested.

Your deferred annuity can have a flexible premium where you are in control of when you begin your premium payments, how much the premium payment will be at any given point, and even when to stop making premium payments.

An equity index annuity is a way to invest your annuity and accumulate growth more quickly than simply earning interest. You can have your annuity linked to a stock market index, such as the Dow Jones or S&P 500, and benefit from the higher level of earnings the stock market will make with your money. An equity index annuity is safe because you will not lose when the stock market loses.

A life annuity can be purchased when you are young and earning a high wage. The interest earned and the tax shelter it provides will help you accumulate money to fund your retirement.

Annuities: Description of Annuities

A retirement annuity can be purchased just before you are about to retire to provide you with a steady income during your retirement. You can use funds from your maturing certificate of deposit (CD), 401(K), IRA, or savings and earnings from an account, including another annuity. Your retirement annuity can be grown through investment funds and can be moved around as you see fit.

Annuities are very flexible and will guarantee you an income until the day you die. Overall, Americans are eating better, exercising more and living longer than ever before. Maybe you should lie awake at night thinking about living too long.

Annuities: Benefits of Having Annuities

An annuity will guarantee you an income until the very end of your life, even if you live much longer than you expected. Benefits to annuities include:

  • Versatility and flexibility. An annuity can be adjusted to suit your needs.
  • Security. Your annuity is backed by your insurance company and has a fail-safe mechanism in place with the backing of your state’s insurance guarantee fund.

The tax benefits of an annuity are very attractive:

  • An annuity is a tax-deferred account for you to put your money in while you are working.
  • Money put into an annuity is after-tax income; therefore, you will only pay taxes on any earnings from interest and investments.
  • The taxes are due when you decide to withdrawal the money or start receiving payments. Your annuity payments will be treated as ordinary income. Your tax rate as a retiree will be significantly lower than it was when you were working.
  • The tax rate at which you will be paying is also lower than the tax rate on other investment vehicles, including your 401(K) and certificate of deposit (CD).

The benefits for choosing an immediate annuity include:

  • Buying it just before you need it because you will start receiving payments almost immediately after you purchase your policy.
  • You can request a fixed monthly payout that will provide you with a consistent income and help you plan your retirement.
  • Protection from creditors. If you face bankruptcy at any time, the money in your immediate annuity is untouchable.
  • Protection from falling interest rates that are eating away at most other savings and investment vehicles; an annuity’s interest rate stays stable between three and six percent.

The benefits in a deferred annuity include:

  • Having a lump sum of your money in an interest-savings and/or an investment portfolio, earning you money while it sits there.
  • A fixed deferred annuity is a low-risk and low interest earning vehicle. A variable deferred annuity is a higher-risk investment in the stock market with a higher rate of return on your investment.
  • The longer your money is in a deferred annuity, the more money it will make with compound interest.
  • It is most compatible with an individual retirement account (IRA) in regards to payouts.

Your annuity will continue to give you a steady income when you have lived a long time, and all other retirement payments have expired.

Annuities: Where To Purchase Annuities

Annuities: Benefits of Having Annuities

Since an annuity’s guarantee is to provide you with an income for a very long time and when you are very old, you want to purchase your annuity from a reputable company. It is recommended that you get advice from a third party, such as a financial advisor, on where to purchase an annuity.

If you prefer to do your own research and investing, you can do that too. However, most distributors will not sell directly to an individual. They prefer to work through a sales-commissioned agent. There are no-load (no commission) or direct sellers that will work directly with the client. Some of the most stable mutual fund companies in the U.S., including Vanguard and Fidelity, will manage your annuity purchase directly with you. They will work with you face-to-face, over the phone, over the Internet or by mail.

Before you contact an annuity salesperson, you can do a lot of your research online regarding the choices and benefits available to you. Many annuity distributors and sellers have company websites where you can request information on their annuities. They can also give you a premium estimate. A good starting point is visiting http://www.annuityadvantage.com/ and http://www.annuity.info/ where you can learn more about annuities and collect information on many reputable annuity companies.

The best way to find and purchase the right annuity is to get help from an advisor. They have access to tools and information, as well as experience in the industry, that you do not possess and that you will not find on the Internet. Also, a financial advisor will have an understanding of your financial situation and can find the annuity that suits you best.

The list of distributors through which you can choose to purchase your annuity is long and varied. Of course, choosing the best of the best is the best idea.

  • Top-rated annuity companies include AIG, ING, Mutual of Omaha and Prudential.
  • Insurance companies with the strongest assets to back a long-term annuity include Metropolitan Life Insurance Company, New York Life Insurance Company and John Hancock Financial.
  • Large brokerages such as Merrill Lynch, sell annuities.
  • High-ranking independent broker-dealers such as LPL Financial and Ameriprise Financial Services also sell annuities.
  • The best banks that sell annuities include Wells Fargo and Morgan Stanley.

There are hundreds of companies that sell annuities. Take advantage of the guidance available to you and make an informed decision.

Annuity Directory
Annuity Directory

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