H2: Annuity and Its Types
Before investing your hard earned money in any investment plan, you need to have a clear idea on what annuity is and its different categories. Annuity is basically a retirement or insurance money back policy. As an annuity holder you will get regular fund once the contract matures. However, you will have to go on paying the premiums for a certain period of time. After retirement you will receive a regular payment that would make your financial life secure and stable. However, the percentage of returns on your annuity will depend upon the type of annuity plan you will opt for. If you do a handsome investment now, you will be sure to get a lump sum amount once the bond matures.
Types of Annuity
Fixed Annuity: In this case, you will get a fixed amount of money as return on your investment and this amount will not be affected even if there is depression or Stock Market Crash.
Variable Annuity: in this case, the return on your investment will depend upon the condition of the market. You will not get any assured sum of money on the returns. If the market is a bullish one, you will get higher returns, whereas if the market is down the annuity will face depreciation.
Immediate Annuity: In this case, you need to make a down payment at one shot and the moment you do it, the insurance policy starts. If you need an immediate income the moment you stop working, then this type would be perfect for you. Here also you will have the option of going for fixed or variable payments.
Deferred Annuity: In this type, you will start receiving payments as soon as you retire. Over a certain period of time you can either make payments in smaller installments or can invest in a bigger lump sum amount. In this type, you can also opt for either fixed or variable annuity. Till the time you start receiving money the funds grow tax deferred.
Some of the other types of annuities are (MVA) Market Value Adjustment Annuities, Guaranteed Returns, Bonus Annuities, and so on.
H3: Annuity Benefits
Tax Deferral: With an annuity, the money you are contributing during the accumulation phase is actually your investment. These earnings grow as tax deferred (you do not have to pay any tax on these savings) till you make the withdrawal.
Flexible Withdrawals: Once you start making the withdrawals, you will be presented with a lot of options. You can either opt for taking a lump sum amount or make smaller withdrawals, according to your financial needs. You can also have the option of not withdrawing the money and leave it as an emergency cash reserve, to meet some unexpected needs or as a legacy to the heirs. This is not possible with IRAs and 401k plans, where you have to withdraw once you attain the age of seventy and half years.
Unlimited Contributions: As per the Federal laws, there is a limit of contribution to the retirement programs like regular or Roth 401k plans. You have the freedom of “contributed money amount” in case of annuity investment.
Life after retirement: Annuities can ensure that you will not outlive your saving, unlike other retirement plans. A general insurance plan ensures of your income requirement if you die too early. On the contrary, annuity does not wait for you to die. It takes care of your life even after you stop working, in case you live much longer.
Beneficiary Support: Investing in annuities offers multiple purposes if you have beneficiaries and dependants to take care of. Along with saving a fair amount of money to make your post retirement life financially secure, you can also leave something for the special people in your life.
Ideal for Estate Planning: Unlike other insurance policies, your beneficiaries do not have to “wait” for acquiring the money till you die. Annuities allow you to pass the money directly to the inheritors, which can be further used in estate planning. As this is really a time consuming process, the annuity money proves to be very beneficial.
Tax Control: Annuity money generally consists of two main components- the principal and your earnings. As in most cases the annuity is opened with after-tax dollars, you will be taxed only on your earnings. Thus, you are saving a lot on tax amount as well.
Easy Maintenance: The starting process and maintenance in later years for an annuity is also very easy. You just need to submit an application, a check and sign your name- and the annuity starts! Another relief would be at the end of each financial year, you will not receive a 1099 for income earned on the annuity contract. Annuities also do not counteract social security benefits like CD, bonds, and so on.