Will annuities help you build up a retirement income?
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.
There are two main types of way to build up the cash value, so something can start generating income for retirement.
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.
Deferred annuities do not pay out right away. In fact, the owner may have to pay a penalty if he or she takes out cash before the term that is specified in the contract. There may be exceptions for this in the case of a severe illness, etc. Some may be funded with a large payment, or they may accept cash contributions made over a period of years. These are intended for people who are trying to plan for an event that is some time in the future.
Payouts - You can also find a variety of payout options. Some common examples are lifetime, joint survivorship, or 10 years. Their are many combinations of this too. For instance, some may have a lifetime payout with a guaranteed payout of ten years. That means that a beneficiary would collect income if the owner passes away before a decade ends.
You can also find annuities with flexible options, so that the owner does not need to take payments. Some people use this to set aside an emergency fund or leave money for their heirs.
One big advantage of buiding cash this way is favorable tax treatment. Both gains and compouding are free to go without being taxed. Income may or may not be taxed depending upon the qualified or non-qualified tax status of the contract.
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.
The S&P 500 is one example of this. During good years, the account will earn an interest rate that follows the index. During down years, the account is guaranteed not to lose money.
And the last question that most people have is jsut how long they will get paid, and how much money they will get. Of course, this all depends on how the account was funded, the return rates, market conditions, and the type of annuity. You need to get some help to look at different products to see how an annuity can help you reach your financial dreams and goals.
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.
There are two main types of way to build up the cash value, so something can start generating income for retirement.
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.
Deferred annuities do not pay out right away. In fact, the owner may have to pay a penalty if he or she takes out cash before the term that is specified in the contract. There may be exceptions for this in the case of a severe illness, etc. Some may be funded with a large payment, or they may accept cash contributions made over a period of years. These are intended for people who are trying to plan for an event that is some time in the future.
Payouts - You can also find a variety of payout options. Some common examples are lifetime, joint survivorship, or 10 years. Their are many combinations of this too. For instance, some may have a lifetime payout with a guaranteed payout of ten years. That means that a beneficiary would collect income if the owner passes away before a decade ends.
You can also find annuities with flexible options, so that the owner does not need to take payments. Some people use this to set aside an emergency fund or leave money for their heirs.
One big advantage of buiding cash this way is favorable tax treatment. Both gains and compouding are free to go without being taxed. Income may or may not be taxed depending upon the qualified or non-qualified tax status of the contract.
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.
The S&P 500 is one example of this. During good years, the account will earn an interest rate that follows the index. During down years, the account is guaranteed not to lose money.
And the last question that most people have is jsut how long they will get paid, and how much money they will get. Of course, this all depends on how the account was funded, the return rates, market conditions, and the type of annuity. You need to get some help to look at different products to see how an annuity can help you reach your financial dreams and goals.
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