Generally speaking, everybody is worried about the liquidity of their investments, not just when buying annuities. They want to know that they can have access to their cash in case there is an urgent situation or demand arises in one way or another. Relating to annuities, the liquidity amount you have may vary significantly by the type of annuity you've purchased and the conditions you can get for that investment.
Liquidity in the Various Kinds of Annuities
You can find four various kinds of annuities, each with ranging liquidity amount. In order to obtain the most from your investment, be sure to know what type of annuity you have and what it is going to do for you.
An immediate annuity, for instance, is like a pension that you invest a lump sum of money in exchange for guaranteed income for life. A lot of us like the security offered by this type of investment, because it is difficult to outlive your money once you get a pension. Yet, in return for this much security, you have no liquidity in any way. As you invest your cash, you cannot access it it at all. Many people know this as "Committing Annuicide."
Getting a fixed annuity is much like purchasing a CD because you know exactly what you are getting in the near future. You will typically earn approximately 3 - 4.5% interest. With these, you can typically take 10% of your money out annually without paying penalty charges. Several accounts even permit you to get 20% or 50% even more, depending on the terms. In the event that you withdraw over the allowed amount, however, an additional fee must be paid.
When it comes to a variable annuity, which is similar to a mutual fund, you can pull your money out at any moment. But, you'll have to draw it out at market value, which may mean that you have less cash than you did when you started. On top of that, there may be surrender fees and you will have to pay for taxes on any gains.
An indexed annuity is a hybrid annuity that allows you to get the market upside without the downside. In return for this security, you will not get all of the upside, though. When it comes to liquidity, this operates like fixed annuities that you can get a particular percentage each year without having to pay for a penalty, plus more should you be willing to pay the charges.
Liquidity vs. Time
Liquidity is very important, even so you also have to remember that you can find only a couple of approaches to become profitable: You may either take a lot of financial risk, or you can leave your hard earned dollars in the market for a long period of time. If you're not ready to take risks, you will have to keep your cash in the market for a while. If you desire everything liquid and secure, your only choice for investing is a savings account, at below 1% interest. Should you do this for 30 years, you can earn 9% return on your cash. Leave it there for 20 years and you may earn 8%, and 10 years may get you 7%.
The Amount of Liquidity You Would Need
Financial specialists say that it's not ideal for most retirees to take a high amount of risk with their investing, because they do not want to shed their nest egg. At the same time, it's also not acceptable to choose a Thirty year investment plan, because they will need their money before that. Many people decide on a variety of investments, combining more liquid investments with long-term types of investments and varying the risk.
Liquidity in the Various Kinds of Annuities
You can find four various kinds of annuities, each with ranging liquidity amount. In order to obtain the most from your investment, be sure to know what type of annuity you have and what it is going to do for you.
An immediate annuity, for instance, is like a pension that you invest a lump sum of money in exchange for guaranteed income for life. A lot of us like the security offered by this type of investment, because it is difficult to outlive your money once you get a pension. Yet, in return for this much security, you have no liquidity in any way. As you invest your cash, you cannot access it it at all. Many people know this as "Committing Annuicide."
Getting a fixed annuity is much like purchasing a CD because you know exactly what you are getting in the near future. You will typically earn approximately 3 - 4.5% interest. With these, you can typically take 10% of your money out annually without paying penalty charges. Several accounts even permit you to get 20% or 50% even more, depending on the terms. In the event that you withdraw over the allowed amount, however, an additional fee must be paid.
When it comes to a variable annuity, which is similar to a mutual fund, you can pull your money out at any moment. But, you'll have to draw it out at market value, which may mean that you have less cash than you did when you started. On top of that, there may be surrender fees and you will have to pay for taxes on any gains.
An indexed annuity is a hybrid annuity that allows you to get the market upside without the downside. In return for this security, you will not get all of the upside, though. When it comes to liquidity, this operates like fixed annuities that you can get a particular percentage each year without having to pay for a penalty, plus more should you be willing to pay the charges.
Liquidity vs. Time
Liquidity is very important, even so you also have to remember that you can find only a couple of approaches to become profitable: You may either take a lot of financial risk, or you can leave your hard earned dollars in the market for a long period of time. If you're not ready to take risks, you will have to keep your cash in the market for a while. If you desire everything liquid and secure, your only choice for investing is a savings account, at below 1% interest. Should you do this for 30 years, you can earn 9% return on your cash. Leave it there for 20 years and you may earn 8%, and 10 years may get you 7%.
The Amount of Liquidity You Would Need
Financial specialists say that it's not ideal for most retirees to take a high amount of risk with their investing, because they do not want to shed their nest egg. At the same time, it's also not acceptable to choose a Thirty year investment plan, because they will need their money before that. Many people decide on a variety of investments, combining more liquid investments with long-term types of investments and varying the risk.