Taking care of their essential expenses after the retirement is the main concern for the seniors approaching retirement. Including the mutual funds and the stock market, there are multiple investment options available to the seniors and the annuities are among the most debated investment options for the same. If structured properly, an annuity insurance can provide a guaranteed source of income to spend your retirement life comfortably. Here, we are going to talk about the basic introduction, types, myths & facts as well as the flexibilities including tax deferral and more.
Basics of Annuities
These are a contract between the insured and the insurance provider where the insured has to pay a monthly premium till they retire and the insurer is entitled to provide a guaranteed monthly income to the insured person. Basically, there are two types available:
These are the annuities where you will receive a fixed monthly income after your retirement from your insurance provider. Under these plans, you earn a guaranteed interest on the amount you in the form of premiums. Unlike the 401(k)s and IRAs, there’s no such limit on how much you can deposit in the annuities to plan your retirement life. You can invest as much money you think will be sufficient to spend your retirement life comfortably. The premiums basically depend on the investment capability of the insured and higher the investment will be, the more you will receive after your retirement.
Variable annuities are a bit different than the fixed one. Under these plans, you make an investment that grows as per the market performances. That means you will receive a guaranteed income for the lifetime but the amount may vary depending on the market performances. If the market goes bullish, you may receive a higher monthly amount while if the market goes bearish, you will receive a comparatively smaller amount. These policies provide a great option to those who have a good knowledge of the market and can bear the unpredictable fluctuations in the market.
Myths & Facts
There are lots of misconceptions among people about annuities. Here are going to showing the reality of some of the most-spread myths.
Myth: I don’t need an annuity as I can spend my retirement by withdrawing from my investment portfolio.
Reality: Of course, you can withdraw from your investment portfolio but a continuous withdrawal increases the risk of outliving your money. Same is the case with social security and that’s a pretty tough situation to face. While the annuity insurance plans provide a guaranteed monthly income for life and you don’t need to worry about outliving your money.
Myth: The insurance provider will keep the money if I die early.
Reality: That’s not the case. If you wish, you can name any of your loved ones as the beneficiary and they will be protected for a set period of time, in case you die early. Such insurance policies are known as exchange policies and start with a very low premium amount.
Myth: Annuities don’t offer flexible plans.
Reality: Well, that’s not true. Annuities offer a range of policies depending upon your retirement needs and the amount of money you can invest. With fixed and variable ones, you get the option to choose whether you want to receive a guaranteed fixed income every month after retirement or you want to invest in the market as well to gain from the market performances. Also, you can add a beneficiary in your account who receive the benefits of insurance for a certain period of time, should you die early.
Myth: I can’t transfer the received income to different accounts for investment purpose.
Reality: This one also isn’t completely true. In some cases, there is a small portion of annuity that not be eligible for withdrawals but you can surely transfer the amount to other accounts or even invest the amount somewhere else.
Myth: Annuities are expensive and have hidden charges.
Reality: Now, nobody will agree with that. These are perhaps the single type of insurance plans that are available for each and every amount you wish to invest. Even the federal investment rules give annuities a free hand and you can invest a very small amount to how much you can afford. Coming to charges, there are no additional charges except the premium that you need to pay.
401(k)s and IRAs are considered to be a good investment option to save one’s retirement life but annuities are one step ahead of these policies. For any amount accumulated under 401(k)s and IRAs, there are federal and state taxes applicable but that’s not the case with the annuities. If you own such an insurance, you don’t need to pat any federal or state taxes on the accumulated amount in your account. This helps your accumulated amount become bigger without any tax deduction. Even the moment you withdraw your accumulated earnings, you are just supposed to pay an ordinary income tax just like everyone. However, if you withdraw the amount before reaching 59½, you may have to pay a 10 percent penalty for the same.
Now, this is an important thing to consider while investing in the same. To decide a sufficient amount for investment and get a cheap deferred annuity quote; you need to properly estimate how long you are going to live. Usually, people underestimate themselves and invest an amount that proves insufficient to take care of their daily expenses in the later years of their retirement life. Usually, a 65 years woman has 75 percent chances of living up to 82 and 50 percent chances of living up to 90 while the same possibility for a 65 years man is 79 and 87 years. Also, the inflation will rise by some percentage when you will reach your retirement. We suggest you get the help of experts from insurance providers for the same. You can reach them just by filling an online form on their websites and can discuss your insurance requirements. They will patiently listen to you, explain the available plans and suggest the most suitable annuity insurance quotes for the same. Comparing those quotes for their benefits and price, you can choose a plan that provides maximum coverage for the best price.
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