If you are planning your retirement at this time, you would want to consider annuities as an investment plan for you. Being purchased from an insurance company, this is a contract that extends over a couple of years but will help in the accumulation of your assets so as to provide you with a substantial income even after you retire.
Workings of Annuity
“An annuity focuses on protecting a person from the possibility of outliving their income”. The funds are collected on a regular basis according to the contract specified, and upon Annuitization, they are then paid to the individual in a stream of payments. Timing of payments made at regular periods are meant to last you for life.
While going in for annuity, there are different options that you will encounter but some of the main options that are open to a client are choosing to invest a lump sum or investing over a given time period. You can also choose to receive your payment instantly or at a future date
At the same time, the client can also determine whether to opt for a fixed, indexed or variable rate of return. Investments however, always involve a certain amount of risk therefore make sure you choose an experienced and certified issuing company so that you are guided properly. Annuity is important to make payments method easier and hassle-free.
Types of Annuity to Choose from
Different annuity is suited to different situations thus it is best to check out your options before you pick the right one. These are the different types available:
- Variable –“This annuity depends on how your investments perform”. This of course would, in turn, depend on the potential growth and risk associated with the investment you choose to go with.
- Fixed – Fixed Annuities Investments are the more reliable sort as the investment that is made along with the earnings are decided beforehand, allowing payments to be made regularly during the term laid down by the contract. Fixed Annuities Investments are more useful than others.
- Immediate –“An immediate annuity is obtained by putting down a lump sum and having the guaranteed income begin almost immediately”. Once you start to pay as specified, your investments will turn into an irrevocable stream of income thus allowing you to access your funds at any time. However, even here, there are certain restrictions.
- Fixed Indexed – If you choose to opt for this class of annuity, you will obtain your returns on the basis of a certain equity based index.” The changes in the security index like the S&P 500 Composite Stock Price Index will determine the returns you get from your investment”. You have to put down a minimum amount for a fixed indexed annuity but the good part is that the value of your contract will never fall below this, irrespective of how your index performs. Since this is not a stock market investment, you will not be a direct participant in any equity or stock investment.
So, before choosing annuity with period certain then always analyses your income needs, tolerance for risks and investment objectives. Visiting an investment professional will help in making the right choice.