Why You Should Buy A Retirement Annuity

A retirement annuity is a viable way of protecting a portion of your nest egg

. An insurance company provides this type of product to help you protect and grow your retirement funds. It also gives the senior investor access to guaranteed income once he or she has quit the workforce, and helps buffer overall retirement resources from the effects of riskier, higher-yield investments.

There are a couple of categories that are used to classify the retirement annuity: immediate annuities and deferred annuities, which differ based on when the insurance company gives the annuity holder his or her payments. The amounts you pay in terms of your initial investment are also used to categorize these retirement products. As such, retirement annuities may be classified as Equity Indexed Annuities or EIAs, fixed annuities, variable annuities, and immediate annuities.

Your choice of retirement annuity can be difficult to make, as the terms of each of these annuities can be complicated, especially to the novice investor. To help you make the most informed annuity purchase, you will need to understand how these insurance products work.

The Immediate Annuity

An immediate annuity is a good tool to help protect your money for retirement. You can pay for your immediate annuity with the money you have in an IRA, 401K, life insurance policy, savings account, inheritance money, or the profits you make from the sale of residential real estate or any other major asset. The insurance provider you want to purchase your annuity from will then guarantee an income stream after you have paid a lump sum up front. Afterwards, the annuity provider will then assume any risks when it comes to the investments it uses your lump-sum payment for, and then determines how much you receive based on the life expectancy of the investor.

The agreement you have with the insurance company that sells you the annuity also allows you flexibility as to when you will receive annuity payments where the payments to you may be made per year, per quarter, or per month. How much you receive also depends on the size of your initial payment, and other factors such as your sex, age, payment terms, and the rates of interest at the time you purchase the immediate annuity.

An immediate annuity is a great addition to your roster of retirement investments. This type of retirement annuity can help ensure that you will not outlast your nest egg by adding to your purchasing power and decrease your responsibility when it comes to managing your retirement money.

by: Katherine Smith

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