Annuity – have you ever heard of this term? You might probably have, if you are a retired person. But if you are a youngster like me, then you are probably hearing it for the first time, or don’t have much knowledge about the topic. This post is designed to enlighten you what Annuity is and how it can benefit an individual. Just read on.
Annuity is a kind of an insurance policy which comes in the form of a financial contract. Annuity can be purchased as a lump sum and can be settled as short installments over an accepted tenure. The main reason why people go for annuity is that, it helps their family in their old age when the insured is old enough not to work anymore. The compensation will be made by the insurance company to the beneficiary when the insured passes away.
There is another branch of annuity called fixed annuity rate. Typically, it is the fixed rate that is paid by the individual who has opted for fixed annuity over a particular tenure. So you have two choices – one is to opt for fixed annuity and the other is to go for the regular annuity. Which one should you choose? There arises the million dollar question. Before going any further let’s first evaluate the tax advantages of annuities.
One thing you need to note is that, annuities are generally more beneficial than the other retirement schemes. And the advantages are even more when the concerned individual is looking for safe investment options without compromising any of his or her existing fortunes.
Here are the tax benefits of annuities:
Tax benefits – According to the retirement savings scheme (401k or IRA funds), your taxes needn’t be paid for when you have purchased your annuity scheme as a one-time payment. In such a scenario, you have the extra leverage to roll-over your funds without paying any taxes. The only taxable amount for you will be on the income that the annuity pays you.
Income for life – A lifetime annuity contract implies that you are guaranteed of tenure-based payments until you live. This means, the insurance company pays you for as long as you live. Simply put, the longer you live, the more number of periodic payments you are entitled to receive.
Annuity saves you from inflation- By opting for a monthly payment annuity scheme you are making sure that you receive your monthly paychecks to meet the rising cost of living caused due to inflation. Remember, if you are not armed with comprehensive insurance during your old age, the inflation will dig a deep hole in your pocket, and you will find it really hard to combat your monthly expenses. This is one main reason why you should purchase an annuity in your retirement age.
Principal protection – Among the many benefits the concept of principal protection is one of the chief benefits of opting for annuity, regardless of whether it is fixed or non-fixed. No matter what the inflation rate is, no matter what the government policies are an annuity guarantees you of a value that’s more than your initial investment. This means, you can delight in the fact that your heirs are assured of good money when your time is over.
Better benefits than social security and other retirement schemes – You might say social security and other retirement schemes can give you guaranteed returns and that’s true, but they can’t match the benefits of annuities. With annuity, the older you grow, the more your investment also grows. No other pension scheme can match the goodies of annuities.
So, there are more than a few reasons why you should purchase annuity. Hope you got a fair idea of what annuity is and how it can come in handy during the retirement age.
I'm Louida from Atlanta, Georgia and I'm a mother of two daughters, and a full-time blogger/influencer.
I love helping others learn how to start working from home online free to help supplement their current income.
I also blog at Productreviewmom.com
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