Annuities refer to a type of insurance product that produces residual income through investment practices. Annuity plans pay Annuitants a fixed amount of income for a specific amount of time. These plans can be a good choice for supplemental income, but are prohibitive for some due to associated costs.
One of the main benefits of annuities is the opportunity to expand tax-deferred savings. Investment proceeds are either paid to Annuitants immediately or deferred until a later date. Setting up plans can be confusing, so it is smart to work with a financial planner to ensure desired results.
Two types of annuities exist - deferred and immediate payment. Each offers advantages and disadvantages such as early withdrawal penalties and potential tax consequences.
Deferred annuities refer to plans where investment income is paid at a later time. Investors contribute to the plan during the 'saving' stage and receive annuity payments during the 'income' stage.
Immediate payment annuities provide investors with payments immediately after the plan is established. Investors purchase annuities with lump sum cash and contribute installment payments for a predetermined time.
Both types of annuities can be setup as fixed or variable. Fixed pays a guaranteed rate, while variable generates income based on performance. Plans can be established for a specific amount of time, such as 5 or 10 years, or for life.
Investment earnings on variable annuities fluctuate based on performance. Variable annuity plans are regulated by the Securities and Stock Exchange Commission, while fixed plans are immune from SEC regulations.
Investors can assign beneficiaries to receive investment earnings derived through annuities. There are multiple variables regarding designation of beneficiaries. The primary beneficiary designations include: spousal, non-spousal, and unusual owner-annuitant such as married couples that co-own annuity plans.
Investors can select from various payment options for annuity payouts. Some of the more common include:
Single Premium Immediate Annuity: This option involves buying an insurance product with lump sum cash and immediately converting into fixed payments to provide income for a predetermined amount of time, or for life.
Deferred Annuity with Single Premium: Investors purchase an insurance product that earns interest on accumulated funds.
Variable Deferred Annuity: Funds are used to invest in a variety of products and payouts are based on performance of each product.
Flexible Deferred Fixed Annuity: Accrued funds earn a guaranteed rate of interest and provide fixed payments.
The most predominant disadvantage of investing in annuity plans is the potential for hidden fees. Annuities are most often purchased through an insurance broker who is paid commission for the sale. The average commission paid to brokers is 10-percent.
Other fees can include insurance riders, insurance charges, and investment management fees which typically equate to 2- to 3-percent of invested funds. Early withdrawal can yield penalties of 10-percent or more. Overall, fees can equate to a losses of 13- to 23-percent.
Prior to investing in annuities it is crucial to gather the facts and calculate risks. Many investors feel annuity investing is a sound financial product, while others won't touch them. Only you can decide what is best for your investment needs.
One of the main benefits of annuities is the opportunity to expand tax-deferred savings. Investment proceeds are either paid to Annuitants immediately or deferred until a later date. Setting up plans can be confusing, so it is smart to work with a financial planner to ensure desired results.
Two types of annuities exist - deferred and immediate payment. Each offers advantages and disadvantages such as early withdrawal penalties and potential tax consequences.
Deferred annuities refer to plans where investment income is paid at a later time. Investors contribute to the plan during the 'saving' stage and receive annuity payments during the 'income' stage.
Immediate payment annuities provide investors with payments immediately after the plan is established. Investors purchase annuities with lump sum cash and contribute installment payments for a predetermined time.
Both types of annuities can be setup as fixed or variable. Fixed pays a guaranteed rate, while variable generates income based on performance. Plans can be established for a specific amount of time, such as 5 or 10 years, or for life.
Investment earnings on variable annuities fluctuate based on performance. Variable annuity plans are regulated by the Securities and Stock Exchange Commission, while fixed plans are immune from SEC regulations.
Investors can assign beneficiaries to receive investment earnings derived through annuities. There are multiple variables regarding designation of beneficiaries. The primary beneficiary designations include: spousal, non-spousal, and unusual owner-annuitant such as married couples that co-own annuity plans.
Investors can select from various payment options for annuity payouts. Some of the more common include:
Single Premium Immediate Annuity: This option involves buying an insurance product with lump sum cash and immediately converting into fixed payments to provide income for a predetermined amount of time, or for life.
Deferred Annuity with Single Premium: Investors purchase an insurance product that earns interest on accumulated funds.
Variable Deferred Annuity: Funds are used to invest in a variety of products and payouts are based on performance of each product.
Flexible Deferred Fixed Annuity: Accrued funds earn a guaranteed rate of interest and provide fixed payments.
The most predominant disadvantage of investing in annuity plans is the potential for hidden fees. Annuities are most often purchased through an insurance broker who is paid commission for the sale. The average commission paid to brokers is 10-percent.
Other fees can include insurance riders, insurance charges, and investment management fees which typically equate to 2- to 3-percent of invested funds. Early withdrawal can yield penalties of 10-percent or more. Overall, fees can equate to a losses of 13- to 23-percent.
Prior to investing in annuities it is crucial to gather the facts and calculate risks. Many investors feel annuity investing is a sound financial product, while others won't touch them. Only you can decide what is best for your investment needs.