Across the United States with the down turn in the stock market annuities have become a major part of the retirement and investment planning for many Americans. However, annuities are designed to be long-term investments, to meet retirement and other long term goals. Annuities are not suitable for meeting short-term goals because substantial taxes and insurance company charges may apply if you withdraw your money early. Annuities also involve some investment risks, just as other investment products and this is why it is imperative that you work with a qualified financial professional to help you make the right choice for you.
Annuities are a contract created by you, the individual, and an insurance company. The insurance company agrees to make periodic payments to you, after a lump sum payment has been made. The payments can provide you with a solid stream of income that will continue even after you expire. Annuities have a unique feature in that it performs as both life insurance and an investment. Annuities offer tax-deferred growth on your interest and similar to life insurance, most include a death benefit that will pay your beneficiary a guaranteed minimum amount, such as your total principle or principle plus gains less any withdrawals.
But, how do you know if you are making a safe and profitable investment? How do your annuity rates compare?
Before you decide to buy an annuity, consider the following questions:
* Will you use the annuity primarily to save for retirement or a similar long-term goal?
* Are you investing in the annuity through a retirement plan or IRA?
* Are you willing to take the risk that your account value may decrease if the underlying mutual fund investment options perform badly?
* Do you understand the features of the annuity?
* Do you understand all of the fees and expenses that the annuity charges?
* Do you intend to remain in the annuity long enough to avoid paying any surrender charges if you have to withdraw money?
* Are there features of the annuity, such as long-term care insurance, that you could purchase more cheaply separately?
* If you are exchanging one annuity for another one, do the benefits of the exchange outweigh the costs, such as any surrender charges you will have to pay if you withdraw your money before the end of the surrender charge period for the new annuity?
Annuities are classified into 3 major categories: fixed, indexed and variable, and some benefits of each kind.
Fixed annuities are paid out in two forms; the deferred payout which defers payment to a later date and the immediate payout which pays upon origination. Both generally base their rates on current market conditions and time to maturity, the longer you wait the higher the return on investment. The average deferred fixed annuity ranges in periods from 3 to 10 year.
* Used for retirement income * Safe investment, no risk. * Has a guaranteed rate * Typically 3-10% Returns with Moderate Growth * 1-10 Year Term
Indexed Annuity rates are linked to an index of economic growth. They are a crossbreed of Fixed and Variable annuities.
* Used to Create Wealth * Safe Investment, lower risk than Variable, but higher than Fixed. * Has a Minimum Rate * Returns Vary, however has Solid Growth * 1-10 Year Term
Variable annuity rates are difficult determine because of market fluctuations, however they are considered a good supplement to a 401(k) because of their lower risk and desirable retirement options. They have many tax benefits and offer better returns on investment. As the name implies the rate varies, however as a long term investment of 10 years or more a variable annuity can actually give consistently higher growth and outperform many fixed rated investment options.
* Used to Create Wealth * Higher risk than Fixed and Indexed * Has a Variable Rate * Returns Vary, however has Strong Growth * 1-10 Year Term
Annuities offer many benefits to the investor, however with the array of products available it can become an absolute nightmare to try to determine which is the best investment for your financial portfolio. It is best to have an accredited financial advisor by your side to peruse over the specific details of an annuity contract and secure your retirement.