An annuity is a type of financial product made between an insurance company and a customer, which indicates that the insurance company will provide income for the rest of the person’s life. If you take an annuity, you will make payments to an insurance company on the premise that they will grow your money to prepare for your retirement.
There are several types of annuities, and these differ in features, coverage, and complexity. Let’s first discuss the two major types: fixed and variable annuities.
Fixed Annuities
Fixed annuities are similar to having a savings account with an insurance company like your bank. This type of insurance product is also like a certificate of deposit with a guaranteed interest rate of 5%. Most insurance companies will offer fixed annuities, but experts say that it’s not worth your time if you’re looking for a good investment come retirement. This is because the rate of return on investment on fixed annuities is so limited you’d be better off with investing in stock mutual funds.
Variable Annuities
Variable annuities are different as these are similar to mutual funds. Compared to fixed annuities, the payments you’ll get come retirement will be according to how the mutual funds you selected will perform in the market. This is actually why this insurance product is called a “variable.”
If you get a variable annuity, the money you invest will already be taxed. As the account grows, tax is deferred. You will have to settle income taxes depending on your investment growth when you start receiving money during retirement.
Single and Multiple Premium Annuity
Annuities vary depending on how you want to pay for them. You can pay for it in one go, or you can pay for it in years. Usually, you can take advantage of some savings when you pay for this in cash.
Immediate and Deferred Annuity
You can select if the annuity starts paying you immediately or some other time. If you take money from a deferred annuity before you reach 59 ½, you may be forced to pay an early withdrawal charge. This is paid on top of your income taxes.
Lifetime and Fixed Period Annuity
You can decide for how long the annuity pays you. You can choose lifetime payments or a fixed period which is usually in 5 to 25 years.
An annuity can be left to a beneficiary, so payments can benefit a family member, spouse, or loved one when you expire. Talk to an insurance expert to find the right kind of annuity that will fit your needs.
At Paul Barrett Insurance Services, we put our clients first by offering them policies they can afford. Having insurance is a necessity nowadays, and we’re here to help you out. Learn more about our products and services by calling our agency at (631) 358-5793. You can also request a free quote by CLICKING HERE.