Annuities: The Shocking Truths Revealed
By Tony Bahu
If the end of your working life is in sight, you need to do some careful retirement planning to make sure you are financially comfortable even after those monthly paychecks stop coming in. An annuity is arguably the best way to go because it gives you regular payments from a predetermined date, making it quite like receiving a salary.
An annuity is a contract between you and an insurance firm under which you receive regular (monthly, quarterly or annual) payments from an agreed date in the future. This feature of annuities has made them an essential part of most Americans' retirement planning. Before payout begins, you pay the insurance company either a lump sum or through installments spread over several years in what is called the accumulation period. Annuities are tax-deferred, which means you don't pay tax on them until you start getting the money back.
Annuities are broadly of two kinds - deferred and immediate. As the term suggests, under a deferred annuity you receive payments from a selected date in the future (most pick a date coinciding with retirement) that comes after 10 to 15 years of the accumulation period. With an immediate annuity payout begins quickly, even within the first year. For an immediate annuity you would have to pay the insurance firm a lump sum. It is a handy way to manage your finances post-retirement as you can pay the insurer your savings and be guaranteed a regular income for the remainder of your life or a term of your choice.
There are other choices to be made as well. You can choose between fixed annuities and variable annuities. Fixed annuities have a rate of return fixed for the annuity's entire term. It is the preferred choice of millions of retirees because it protects their money from market fluctuations and gives them security in the knowledge that they would receive a certain amount of money through the annuity's life. Variable annuities allow you to put your money into mutual fund-like sub-accounts and your earnings depend on their performance. While this option gives you scope to earn a lot of money if the markets do well, there is a great risk involved because you could just as easily suffer heavy losses if the markets head south. There are also equity index annuities, which allow you to benefit from a rise in the markets while protecting you from any significant slide.
Retirement planning requires a lot of care because your future depends on it. Do not make decisions in haste. Compare as many annuity quotes as you can so you get the best deal possible. Ask a lot of questions about death benefit and surrender charges before buying an annuity so there is no scope for rude shocks a few years down the line. If you want to learn more about what to look out for and what questions to ask your agent, visit www.annuitymd.com . This website offers a product that is an invaluable guide to people looking to buy annuities and those who already have them. It tells you about the potential pitfalls and ways in which agents sometimes try to mislead their clients. Annuitymd gives you the full picture so your retirement planning leaves nothing to chance.