When you are planning for retirement, you'll encounter many new vocabulary words. For example, what is an annuity and how can it provide you with income for your retirement years? Annuities are usually associated with insurance companies and consist of funds set aside for a certain period of time. Then, the money is returned in increments as a guaranteed income repaid for a set time, such as 10 or 15 years, or for the duration of one's life.
Common Features of All Annuities
Annuities are offered by several different organizations, but all annuities feature a guaranteed income over a fixed amount of time and tax-deferral status. This allows people to ensure they will have some reliable income in the future. Gather as much annuity information as you can to see how it fits with your overall retirement plans.
Your Annuity Options
When you are investigating annuity options, there are several things to consider, as not all annuity plans are the same. Each has an up side and a down side, and the right annuity depends on your individual situation.
Variable Annuities: Variable annuities are well suited for investors who like a hands-on approach to seeing where their money goes, and the funds are spread across a wide range of investment vehicles, such as stocks, bonds and mutual funds. In this case, you increase potential risk, but you also increase potential reward.
Fixed Annuities: Fixed annuities are much less risky and resemble CDs in that there is a fixed interest rate that will remain in place regardless of market activity.
Equity-Indexed Annuities: These annuities provide returns based on whichever is greater, a set minimum rate or a stock market index.
Immediate Annuities: For those near retirement, immediate annuities allow you to convert a moderate to large sum of money into income in the near future.
Are Annuities Right for You?
Annuities are an option for people on a fixed income, as the monthly payout can come in handy. They are also suitable for people who have a large sum of money to invest, such as lottery winners or lawsuit settlement recipients.
However, with all the options, you will need to do research to find out if annuities are worth it for you. For example, you can be hit with significant penalties if you try to withdraw money from the annuity, but, if you are comfortable with keeping your money in one place until retirement, an annuity may fit into your overall retirement plan.
 | Find out what are the pros and cons of an annuity before you are seduced by a pitch because the prospect of steady retirement income is tempting. |
 | If you're a conservative investor, a fixed annuity might be the perfect option. |
With equity-indexed annuities, you get returns based on either a minimum rate or a stock index, whichever is better at the time. That might sound like a dream, but strings are attached. |
If you're evaluating annuity options and looking over annuity information, you'll run into information about the tax-sheltered annuity. What is a tax-sheltered annuity, and how does it compare with other annuity options? |
If you're considering an annuity as a way to supplement retirement income, you must first know how do annuities work. In general, you would make a payment to an insurance company, and then the insurance company would make regular payments to you based on the terms of your contract. |
