Understanding Annuities

shutterstock_71871112Retirement planning needs to be a lifelong process in order to work well. People need to save up a portion of their earnings and invest for their retirement fund for a majority of their working life to come up with enough to sustain a comfortable retirement. People will also have to deal with the different retirement saving options available to them. An annuity is just one of them.

What is it?
An annuity is a type of insurance product that retirees can consider to provide a lifetime or fixed-term income in exchange for an immediate lump sum payment to an issuer or through a series of regular payments prior to the onset of the annuity. Basically, an annuity can provide a person with a fixed income to rely on during retirement.

Types Of Annuities
There are different types if life annuities that people can choose from. There is the fixed annuity which can provide payments in fixed amounts or ones that increase in a fixed percentage. One disadvantage of this type of annuity is that recipients receive a fixed amount and at risk of being eroded by inflation.

A variable annuity pay in amounts that may vary depending on the performance of a specified investments that the principal has been placed. Variable annuities give people an option to invest their funds in a variety of available sub-accounts to get the best gains. Another advantage is that variable annuities operate on a tax-deferred basis where taxes on gains are deferred until the first withdrawal is made. This allows the variable annuity to experience better growth over time.

There is also a joint annuity which provides a fixed payment for married couples. Payments continue until the death of one or both annuitants. Sometimes the payments to the surviving spouse are reduced after the death of the first. But payments still continue until both recipients die.

There is also a type of annuity called Impaired or Enhanced Annuity that is designed for people who are suffering from certain health conditions. Since life expectancy may be shortened by a debilitating illness, this type of annuity provides higher payouts compared to a standard annuity.

 

Posted by Ardent Editor on Dec 12 2014 in Annuities Tags: , , , , ,

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