Advantages Of Annuities
Most Americans are under the false notion that annuities are only for the very wealthy
. However, annuities are a great savings plan; they can take care of your money and grow it like no other financial instrument can. To understand the advantages better, we need to first learn what an annuity is, and dwell on the types of annuities. Lets learn more
What is an annuity?
In general, an annuity is any investment that guarantees an annual income. However, the annuities we are referring to, are issued by a life insurance company, and work in reverse to the way a
life insurance policy works. It is a contract between an annuitant (investor) and the
life insurance company through which you make payments to the company, and the company in turn assures you of a regular income in the future in a variety of payout options that we will understand better when we learn the types of annuities
Types of annuities
-Fixed annuity: Is ideal if you are looking for a regular future (possibly retirement) income. You are promised the principal amount, along with a minimum rate of interest.
-Deferred Annuity: The payouts are deferred to a later date, so this is ideal for someone who is well off now, but needs to keep aside income for their retirement years, or future years of need.
-Variable Annuity: Variable annuities pay out depending on the fluctuations on the stock market. It is recommended only for those with a penchant for taking risks that come with investing in the stock market. These days mutual funds are very popular and they are an example of variable annuities.
- Equity-Indexed Annuity: They are a mix of the fixed and variable annuity types. The investor is assured of a minimum rate of interest, while the investment is also linked to the stock market.
There are many other variants of annuities, but the ones outlined above are sufficient to give you an idea of the way annuities work.
Advantages of Annuities
Every investor wants a good rate of interest on their money, while being sure that their money is safe. Annuities measure up to this, and much more, as we can see from the many advantages that annuities represent.
Safe and low-risk
In these uncertain economic times, annuities are probably the safest option open to investors. This is because annuities are regulated by the State, and in addition the Federal Securities and Exchange Commission regulates some annuities. For example, according to federal law, insurance companies must hold reserves that equal the total withdrawal money of every policy. Because of this, only top-rated insurers can manage to issue annuities, and you can be sure your investments are safe.
Tax Deferred
Annuities are one of few tax-deferred financial vehicles currently available in the market. This is a huge benefit, because your entire investment grows unhindered by taxes, year after year. This puts annuities right on top of the list of investment options, even ahead of CDs and even those taxable investments that offer high returns.
Withdrawal tax
Annuities are charged at the withdrawal stage. However, even this is non-draining because it is taxed as ordinary income. Also, most annuitants opt to time their withdrawals with their retirement. This means that they would be in a lower tax bracket, too.
Guaranteed rate of interest
Annuities offer guaranteed returns. Some annuities these days are guaranteeing a 3 4% interest for as long as five years.
Lifetime incomeSome annuities offer you the choice of opting for a lifetime monthly income that you cannot outlive. This is something that no other financial product gives you, and makes it a perfect retirement planning tool.
Flexible
Annuities are very flexible. For instance they offer you flexibility in paying your premiums, and flexibility in payout options as well.
Absolutely secure
Annuities cannot be included in bankruptcy judgments neither can the courts seize them. This makes them a very safe investment avenue.
No limits
There are no limits on the amount of money that an individual can invest in annuities. Also, there is no set age limit after which you can be entitled to start receiving your annuity income.
Full control
Annuities give investors control over how they want their income and how often. Also, investors have control over how their policy will function after their death. For instance, they can opt for a beneficiary to continue to receive income from the annuity.
Annuities offer peace of mind
In these uncertain times, annuities are a welcome avenue to ensure not only that your investments grow unhindered, but also that you have peace of mind as you approach your retirement years. They offer excellent advantages over other forms of investments. For those looking for assurance of future security, safety of their principal amounts and the flexibility to choose the withdrawal patterns, annuities are an unbeatable choice.
by: Denise Mancini
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