The Basics of Annuity

Aside from 401K and Ira, the annuity (whether variable or fixed) can be a great retirement vehicle. Annuities have some of the same benefits you can get from other retirement plans, but it usually does not have contribution limits, income limits, or mandatory withdrawals that 401K and traditional Ira provide. Here are what you should know before choosing an annuity as your retirement plan.

Categories of an annuity

This retirement plan falls into two categories: fixed and variable annuities. A fixed annuity gives you a predetermined interest rate on your earning guaranteed fro a certain term depending on the contract.

Meanwhile, variable annuity premiums are invested among stocks, bonds, and money market accounts. The latter is almost similar to the 401K plan and traditional IRA. Both categories use your after-tax dollars as contributions, but the earnings grow tax-free.

Insurance advantages

Aside from being a retirement vehicle, both forms of annuities also carry an insurance component, depending on the policy you choose. Insurance choices in variable and fixed annuities include guaranteed death benefits, guaranteed payments for as long as you live, or even payments for the life of one’s beneficiary.

Who will benefit the most

People who benefit most from a variable or fixed annuity are those who have already maxed out their employee-sponsored 401K plan retirement accounts or traditional IRA, and have additional capital to invest. Also, a variable or fixed annuity would give you peace of mind because you can get a variable or fixed annuity policy that would guarantee income for the rest of your life.

In addition, anyone who are vulnerable to malpractice like doctors, lawyers, accountants, architects, or financial planners are good candidates because annuities are credit-protected in many states and therefore would generally be safe from malpractice suits.


Posted by Ardent Editor on Jun 30 2008 in Annuities

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