A Proven Investment To Secure Your Retirement, Annuity

One of the financial products, annuity, an annuity is a contract between you and an insurance company in which you make a lump-sum payment or series of payments. Of course, the more you contribute, the higher you can grow money. In many cases, people grow their money in IRA, 401(K), or mutual funds while they are younger to maximize their profit but once they retire after 60, they tend to roll it over to an annuity to protect their money. The worst thing happens in your retirement is the loss of your savings. It is easy to understand that an annuity is a shield that protects IRA and 401(k) and other investment from volatility.

Once your money is matured, you would obtain regular disbursements beginning either immediately or at some point in the future. The goal of having annuities is to secure your retirement by providing a steady income. Although, the duration of disbursements can vary. You get to choose how to receive your payments for a specific period of time- for example, 30 years or receive until your death like a social security.

 

This investment vehicle is designed based on tax-deferred just like 401(K) and IRA. Meaning you won’t be taxed while you are growing your money, however, you would be taxed once it starts distributing. The difference is annuity is not subject to penalty after age 59.5, so even if you decide to draw your money out below the age of 59.5, the penalty won’t apply to this.

 *Qualified Plans, 401(K) and IRA, are subject to penalty. The penalty can be very costly, it varies in a state but people get 10% penalty from Federal and 3% from California State. Remember those penalties come on top of taxes. For example, If you take out $60,000 a year, its tax bracket is around 30%. A total of your loss would be 43% of $60,000, which is $25,800. Isn’t it ridiculous? That’s why you have to be smart and know what you are doing to keep your money in a safe place.

Types of Annuity

There are three different types of the annuity provided:  Fixed Annuity, Fixed indexed Annuity and Variable Annuity.

-Fixed Annuity

Fixed annuities are essentially CD-like investments issued by insurance companies. Like CDs, they pay guaranteed rates of interest, in many cases higher than bank CDs.
*Remember banks are insured by insurance corps, it is a no-brainer that keeping your money in insurance corps. is safer and grow your money with the better interest rate.

-Fixed indexed Annuity

Fixed index annuities provide the guarantees of fixed annuities, combined with the opportunity to earn interest based on changes in an external market index (such as the S&P500).

A fixed index annuity may be a good choice if you want the opportunity for accumulation, but don’t want to risk losing money in the market.

*A fixed index annuity gives you more risk – but more potential return than a fixed annuity – but less risk and less potential return than a variable annuity.

-Variable Annuity

As opposed to a fixed annuity that offers a guaranteed interest rate and a minimum payment at annuitization, variable annuities offer investors the opportunity to generate higher rates of returns by investing in equity and bond subaccounts. According to the security history, a variable annuity has the potential to gain interests the most and pay out to retirees, although it is still exposed to market volatility, you may not feel safe more than the ones with protection such as Fixed, and Fixed indexed annuity.

Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contract.

*There are two phases that the money can grow and distribute in an annuity .

 

 

 

---

<Recommended Book>

Life Annuities: An Optimal Product for Retirement Income