subject: Planning For The Future, Today [print this page] When people look at financial planning and want to secure their financial positions for the future, they look to a set of products called annuities. What is an annuity? Well annuities are tools that allow people to achieve financial security for the future, where the person and an insurance company come to an agreement where the company will pay the person financial installments over a certain period of time, in exchange for a series of payments paid to the company. This can either be paid over a period of time, whether it is over a year or the rest of person's career, or even in a once-off lump some.
Annuities in general will offer financial growth of earnings that can be tax deferred. The major benefit the customer gets from this feature is that the customer will not have to forfeit any money due to tax during the growth period. Special annuities will offer other features. Such features could be benefits relating to death, where a customers death were to occur, then their spouse would receive financial payment from their annuity. Early withdrawal of funds from an annuity can result in penalties and tax deductions. But when withdraws are taken at the agreed time, they will not be taxed at the capital gains tax (CGT) rate, rather just the ordinary income tax rate.
With annuities there are different types and each suit a particular person and their needs. This is called the Annuity Variable System, which there are three types of annuities that can be used for financial planning. These are fixed, variable and indexed annuities. First one is the fixed annuities rate, where the company which the client has the contract with will pay the client a specific interest rate to be paid during the years of growth to their account. The amount to be paid out to them when the account reaches the agree withdrawal time would also be agreed on. The customer also has the opportunity to make the payments to a spouse or family member if they so wished.
Variable annuities allows the customer to choose what equity securities the person would like to invest in. They are granted many options when choosing the variable annuities option. It is usual that customers use mutual funds when choosing this option. It should be noted that this option is favored by people whole have considerable knowledge in the shares and financial markets. This option can provide a fruitful profit. But there are considerable risks and if chosen poorly could jeopardize the customers financial projections in the long term.
With indexed annuities it's an annuity that relies on a return, based on a particular equity index such as the Standards & Poor's (S&P) 500 Index.
Which option best suits you? Is it the safer option of fixed annuities, where you are guaranteed a rate of return for your installments? The variable annuities give you a more flexible rate of return but could perform poorly if the indexes don't perform as expected. Or should you choose the risky variable annuities where the risk are the high but the benefits are fruitful? It all decides on your risk level and what your financial goals are.
