How to Use Annuities for Retirement Income
An annuity is a plan that provides a steady stream of income for life and shifting the burden of managing savings to Life Insurance Company. No other personal financial product offers this guarantee of lifetime income as Annuity. The word “annuity” describes more than five different products that have little common things in the name. Here we discuss on What is an annuity investment and it is right for your retirement or not?
Annuities are issued by insurance companies and give the owner the option to convert his money to a guaranteed income stream at some future date. Annuities can be different types like fixed, variable, immediate, indexed and much more. Beacon Research, a well-known research company published in its reports that sales of individual fixed annuities in U.S. raise about $19 billion in the first quarter of 2011.
There was a poll and when asked people to choose a more attractive product from two, where (1) a financial product which is providing 4% return and guaranteed not to lose value, and (2) a product with 8% return subject to market risk and loss of principal. Surprisingly, 76% of people choose the 1st option i.e. guaranteed product and remaining want to go with the 2nd option. 81% people said that they want a stable and predictable standard of living throughout retirement.
Put on Your Thinking Cap
Everybody gives advice that carefully analyze the costs, product features, and guarantees before purchasing any plan. But every time it is not possible to take a right decision. It is a new, innovative and customizable product.
Know the Differences Between Variable Annuity and Fixed Annuity
A variable annuity may lose its value when the stock market declines whereas fixed annuity protects principal from stock market losses. A fixed annuity guarantees a minimum rate of return and also provide the contractual promise of guaranteed lifetime income. However, some annuities have more than 10 years surrender periods and if the investor wants to get out of the investment earlier, he has to pay high penalties.
Do They Belong in Your Portfolio?
Annuities are not designed to compete with the stock market, therefore, it should not be used as an equity alternative. If a person is sure that he won’t money for 10 years, then only go with a traditional deferred annuity.
Figure Out the Fee Structure
There are many types of fees in which some are hidden and some are clear. The cost of variable annuity varies from 2% to 4%. The biggest advantage of annuities is that they allow an investor to save money on a tax-deferred basis.
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