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Planning your retirement with Annuity Investments

Planning your retirement with Annuity Investments

Retirement planning can be the cause of great stress in the minds of individuals especially when the financial markets outlook is a bit bleek and the prospect of getting a stable fixed income to support their lifestyle appears limited. Most people are on the lookout for safe avenues to invest their hard earned money so that it grows considerably to fund their retired days. Annuity Investments are arguably the best performing investments for retirement in the low risk category.

Annuity Investments are basically sold by insurance companies and come with a lot of benefits for the investor concerned, the most attractive of which happens to be that it provides tax deferred earnings for a specified period. At the same time, it must be understood that Annuity Investments are not insured and the safety of the investment rests solely on the insurance provider, whether it be a bank or a private insurance agency. With this in mind, it is best to invest in Annuities through a long established and respected financial institution.

Types of Annuity Investments

Fixed-rate annuities

These are one of the safest of Annuity Investments and basically entail the investor paying a specified amount of money to the insurance provider in return for which the provider guarantees to pay the investor a certain amount of money periodically till the date of expiry of the annuity. This assures a steady stream of income during retirement and is considered the least risky of the plans among Annuity Investments, although the lowest paying too. Moreover, penalties are imposed on the investor if he withdraws money before the stipulated time.

Variable annuities

In comparison with Fixed Annuities, Variable Annuities are considered to be more complicated and risky. But since this mode of annuity investment is closely linked to features like life insurance, mutual funds, etc, they are more sought after in terms of larger returns.

Basically, when an investor opts to go in for Variable annuity, he/she is given the option of selecting from a list of ongoing mutual funds like balanced mutual funds, money market funds or international funds to choose and invest in. What makes the Variable Annuity stand apart from Fixed Annuity is the fact that you can opt for a death benefit scheme for a small fee. This entails your legal heirs to be benefitted with the current market value of the annuity that you had invested in, which could be much more than the principal sum.

CD-type annuities(USA)

Another type of Annuity Investment is the CD Annuity which works according to the penalty period of the investment. That is, if you have invested in a CD annuity that has a term of five years and gives an interest rate of 6%, it simply means that you are guaranteed to receive 7% annually for the period of the investment.

Annuity Investments are tax deferred and the investor gets to enjoy tax free returns since the Tax man considers it to be ordinary income immaterial of the duration of the investment. But if you withdraw it before retirement age, you tend to attract a hefty penalty depending on the duration of the investment.

One Response to “Planning your retirement with Annuity Investments”

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