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Post By Joan
What Is an Annuity?
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Retirement Planning, Annuity, Life Insurance
Annuities play an important role in retirement planning.
If you are at a stage where you’re building an income strategy for retirement, then it is highly recommended that you give annuities a serious thought. Annuities are a means of building savings for retirement. Some even provide income for your heirs after your demise.
An annuity is a long-term contract between you and an insurance company whereby you make an investment and in exchange, the insurance provider generates regular income payments for you in retirement. The income you receive can be on a monthly, quarterly, annually, or lump sum basis.
What Are the Different Kinds of Annuities?
Deferred Annuity - The annuity payments start after a certain period of time. Usually, the insurance company collects regular payments till the individual reaches a certain age, but some plans allow single premium payment as well.
There are two phases in deferred annuity:
| Accumulation Phase | Pay-out Phase |
| In the accumulation phase, payments are made to the insurance company to build the annuity value. The money that you have invested earns interest during this phase. | In the pay-out phase, the insurance company begins to pay the benefits in the form of pensions. There are several payment options you can choose from, like the fixed amount option, life-only option, and joint and survivor life option. |
Who Should Buy Deferred Annuity?
If you’re still years away from your retirement and want to ensure you get a fixed income every month on retirement, you should consider getting a deferred annuity.
Immediate Annuity - In the case of an immediate annuity, you start receiving the annuity payments right after you make the initial payment. The premium for immediate annuities should be paid in a lump sum. If you receive a considerable pay-out from an insurance policy or sale of property, you can invest the money to build an immediate annuity, which will provide you with regular income payments for the rest of your life.
Who Should Buy an Immediate Annuity?
Such plans are most suitable for retirees who feel like they are likely to outlive their savings.
Advantages of Annuities
There are several benefits to investing in an annuity plan. Here’s a look at a few:
- Guaranteed Pay-out - You can rest assured that you will receive the agreed-upon amount until the event of demise. You can also have peace of mind knowing that the benefits you receive will last you your whole life.
- Tax Benefits - The funds that you invest in an annuity plan are exempted from tax.
- Financial Goals - Annuity plans can be used to meet other financial goals. You can leave a gift to a charity, provide financial security for your dependents, and so on.
In conclusion, availing an annuity plan is a means to retire with confidence. If it is part of a well-structured retirement plan, annuities can be a good investment.
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