Do Annuities Help Plan for a Retirement Income
How can annuities build up income or savings?
Who sells annuities? Insurers market them because they combine investment and insurance features. Two common reasons people purchase them is to save for a long term goal, or to assure income later. So even though people tend to associate them with retirement income, they can also be used for other reasons.
So how does the cash account get funded? An annuity will need to have a cash value in order to generate growth or income.
An immediate annuity is funded by one large sum at the start. Consider a retiree with a lump sum payout or a person who has inherited cash from a family member. This product, as the name implies, begins to make income for the owner right away.
A deferred annuity, on the other hand, must be kept intact for a period of time that is agreed to when it is applied for. If money is withdrawn before this, except for specified reasons, the owner must pay a penalty. So these are meant to reach longer term goals, and for people who do not need the money right away. They could be funded with a lump sum or with a series of payments made over a period of years.
How do you get paid? There are a variety of different options for getting money back. A lifetime payout may guarantee income for life. But some people accept payouts for less time, like 10 years, or for the lifetime of either spouse (joint survivorship). They payout that you would choose would depend upon your needs and the cash value of the account.
Some have flexible payout options, and people use them to save money for an emergency.
Many people like annuities because of the favorable way that the IRS tax code treats them. They can grow in a tax deferred manner. They may be qualified or unqualified, which will affect the tax treatment of income payments.
Many people consider fixed annuities because of their safety. Risk is minimized if they pay at a contract rate, or even if they are tied to a market index.
Consider one common market like the S&P 500. In good years, when the index goes up, the cash account will grow at a rate that is pegged to that market index. In down years, when the index is down, the cash account will be guaranteed not to lose money. It may either be set to remain stable, or even to earn a set rate like 2%.
Of course, most people want to know how long their annuity will pay out, and how much money they will get. This will depend upon how much money is in the fund, the rate of return, and the type of annuity. It is important to be able to compare different annuity products on the market, and see how they will help you reach your goals. - 23305
Who sells annuities? Insurers market them because they combine investment and insurance features. Two common reasons people purchase them is to save for a long term goal, or to assure income later. So even though people tend to associate them with retirement income, they can also be used for other reasons.
So how does the cash account get funded? An annuity will need to have a cash value in order to generate growth or income.
An immediate annuity is funded by one large sum at the start. Consider a retiree with a lump sum payout or a person who has inherited cash from a family member. This product, as the name implies, begins to make income for the owner right away.
A deferred annuity, on the other hand, must be kept intact for a period of time that is agreed to when it is applied for. If money is withdrawn before this, except for specified reasons, the owner must pay a penalty. So these are meant to reach longer term goals, and for people who do not need the money right away. They could be funded with a lump sum or with a series of payments made over a period of years.
How do you get paid? There are a variety of different options for getting money back. A lifetime payout may guarantee income for life. But some people accept payouts for less time, like 10 years, or for the lifetime of either spouse (joint survivorship). They payout that you would choose would depend upon your needs and the cash value of the account.
Some have flexible payout options, and people use them to save money for an emergency.
Many people like annuities because of the favorable way that the IRS tax code treats them. They can grow in a tax deferred manner. They may be qualified or unqualified, which will affect the tax treatment of income payments.
Many people consider fixed annuities because of their safety. Risk is minimized if they pay at a contract rate, or even if they are tied to a market index.
Consider one common market like the S&P 500. In good years, when the index goes up, the cash account will grow at a rate that is pegged to that market index. In down years, when the index is down, the cash account will be guaranteed not to lose money. It may either be set to remain stable, or even to earn a set rate like 2%.
Of course, most people want to know how long their annuity will pay out, and how much money they will get. This will depend upon how much money is in the fund, the rate of return, and the type of annuity. It is important to be able to compare different annuity products on the market, and see how they will help you reach your goals. - 23305
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6:31 AM
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