Make your retirement secure with annuities
Most people look forward to retirement. After all, it is a time when you can reap the benefits of everything you have sowed for your entire life. However, this is also the time when one needs financial security the most. The inflow of regular income stops and you have to survive on your life’s savings to spend your retirement peacefully. One option for the same is securing your retirement with annuities. It is a preferred option for regular cash flow once the period of the investment is over.
Following is some relevant information that you may need to know while choosing retirement annuities.
What is an annuity?
- An annuity is a type of insurance product that sets up a system of investment wherein you can get regular cash flows after a stipulated duration of the investment.
- Retirement annuities are a common addition to portfolios, which mainly aim at investing toward a financially secure retirement.
- The working principle of an annuity can be divided into two phases. First, you invest a pre-decided amount into the annuity. Second, you receive a payout on a pre-decided set of dates.
- These dates can be set as per your (the investor’s) convenience. You can receive the cash flow either monthly, quarterly, in a lump sum, or even annually.
What are the different types of annuities?
- There are two types of annuities available in the market, namely, immediate and deferred.
- Under the immediate annuity, you start to receive payouts after the initial phase of the investment itself.
- Whereas, under a deferred annuity, you invest for a preset duration and then start to receive benefits once the annuity matures.
- An annuity can also be variable or fixed in nature. The difference between these two is the money you invest and the results promised. Under a fixed annuity, you contribute a pre-decided amount and the rate of interest is also decided previously, which helps you gauge the profits you will earn on your investment.
- On the other hand, under a variable amount, the returns and the profits would mainly depend upon the current condition of the market.
Which type of annuity is ideal for retirement?
- Both types of annuities can be used for retirement. However, deferred annuity is a preferred method of investment as it gives the investor enough time to put aside the money for their retirement.
- Under the immediate annuity, older people can put in a lump sum of their savings and start collecting the payments right away.
- Choosing between fixed and variable annuity will also depend upon when you start to invest in retirement annuities. If you are nearing the age of retirement, then a fixed annuity is better, because it gives you a ballpark figure of how much you were to get back once it matures. This feature would be helpful in planning your retirement funds better.
Is holding an annuity under my IRA a sensible option?
- An IRA stands for an individual roth account. This account invests in different investment options to save up a considerable amount by the time the individual retires.
- Including retirement annuities under an IRA is not sensible because they are both tax-deferred and as such would offer you the same benefit of saving tax on your gains.
Are there any tax benefits against annuities?
- Yes, the money invested in retirement annuities grows to be tax-deferred.
- Even though the contributions made to these annuities are not taxed, when you start to earn the benefits, the cash flow is taxed in the same manner as your regular income.
Which are the top options for securing retirement with annuities?
Some of the providers for top retirement annuities that you can consider include:
It is ideal to choose your annuity depending upon the term you want to make an investment for so that you can gauge when you need the cash flow to start arriving.