For people who are earning a fixed amount of salary annuity investment is the best genre of investment. They may be planning for retirement and can be looking for some low risk investment sector where they can have enhanced benefits after their retirement. Annuity as an insurance provides the death benefits and secure your invested money for the beneficiary where as from the investment point of view it provides you benefit of income protection, higher interest rate than any other form of investment and the most important tax benefits.
You can choose the option to “annuitize” the principal amount in your income for the time period chosen. Different annuity providers provide varied plans and differ in what they cover and how much they pay for it. According to the interest rates and many other different aspects of the various plans, the annuities are classified broadly into three categories. Below are mentioned in each genre and after going through this it will be clear which the best option for you is.
Fixed Rate Annuities – Most Reliable and Conventional Mode of Investment
This is the oldest and safest type of investment. You pay insurance company a fixed amount of money and you get a bigger total amount but at fixed rate installments. This is best for the people who want a fixed monthly amount for their sustenance. The aim of the insurance company is to invest your deposit and fetch more money than promised to you. The interest rate is higher on fixed rate annuities than the certificate of deposits or CD’s. The fixed rate for annuities also has a different meaning as for CD where it is fixed for the term whereas for the annuities it is guaranteed for the first year and afterwards can be adjusted. The tax-deferred benefits are applicable to this type of investment provided you do not withdraw in the penalty time.
Variable annuities: – A combination of mutual funds, life insurance and tax relaxation
It is a little bit complicated type of investment and it is good if you try to understand all the terms of this type beforehand. You can have the benefits of life Insurance, mutual funds as well as tax-deferred. Whenever you opt for the mutual funds investments, you have the option to market funds, international funds and balanced funds. This also covers the death benefits that you will not find in other investments. Taxes are levied in the same way as for the fixed rate annuities and earnings are taxed as ordinary income. This option is best suited for the people who have reached the limit of their retirement savings and any dimension does not limit your amount. Just by paying a slight fee, you can convert it into a stream of lifetime income.
CD type annuities: – Rigid Rates and High Rates than Older Versions
It is another fixed rate annuity type and same rates are applicable during the penalty period also. The rate is fixed and it does not vary if there is market fluctuation. This type of annuity investment was devised because the market rates were falling and promises made by the insurers were broken as they were not able to pay the high interest rates after guarantee period. The interest rates offered these days are much higher than the traditional CD’s but if you withdraw before the stipulated time certain, you are liable to pay the penalties. Like the fixed annuities, the surrender charges are same in this option.
Keeping in view all the different types of annuities and the benefits attached to them now you will not face any problem in selecting the right option. Moreover you do not have to worry any more if your retirement savings are on the verge of extinction annuities are there for you to invest and multiply your dollars.
Andrew has spent a number of years in the insurance field. That is why, he could write impressive articles on annuity investment. His work is of the highest quality and always well organized.