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An annuity is a financial tool that provides you with a stream of income for a specific time period or lifetime. You can purchase an annuity with a lump sum payment or with a series of regular payments.
The insurance company holds the money invested in an annuity, and they promise to pay a certain amount of return each year for a set period of time. The amount of return which you receive each year is called the annuity payment.
Types of Annuities
- Immediate Annuity
This type of annuity starts paying out income right away. You can choose to receive returns monthly, quarterly, semiannually or annually. The amount of your return will depend upon various factors like age, time, the amount invested, and the insurance company.
- Deferred Annuity
In this type of annuity, the return starts at a later date. This could be in a few years, or it can be when you reach your retirement. This type of annuity is designed specifically for retirement planning, and it ensures financial protection at the time of retirement.
Benefits of Investing in an Annuity
Why invest in an annuity for future benefits?
- Guaranteed income stream
Annuities provide you with a guaranteed income stream, which can be helpful if you are worried about outliving your retirement savings.
- Tax-deferred growth
The growth of your annuity is tax-deferred, which means you don’t have to pay taxes on it until you start receiving payments.
- Death benefit
If anything unforeseen happens to you before you start receiving returns from the annuity, your beneficiary will receive the death benefit.
Many different types of options are available in an annuity, which you can choose according to your needs and requirements.
Things to consider when deciding whether or not to invest in an annuity
Annuities are generally more beneficial for older people who are closer to retirement. The average age of annuity buyers, in general, is 70 years old.
- Financial goals
Annuity helps you achieve various financial goals, like a guaranteed income stream at the time of retirement or helping you grow your retirement savings tax-deferred.
Annuities can be a valuable tool for retirement planning; it is essential to consider your individual needs and requirements carefully. An annuity has a lot of future benefits like a guaranteed income stream, tax-deferred growth, and death benefit. An overall annuity is a good investment that is packed with many prospective and current benefits.