Many people turn to annuities to help provide additional retirement income. After maximizing the amounts you are allowed to put into your 401(k), 403(b), SEP and IRA(or Roth IRA) you may consider investing in such plans. There is no limit to the amount of money you can invest in these plans. What really are they, and how do they work?
These investment plans are sold mainly by life insurance companies. You give them a certain amount of money, either in one lump sum or in multiple installments, then at a predetermined time they pay you an income. This income may be paid to you monthly, quarterly, half yearly or yearly. The two basic types of plans are Fixed and Variable.
There are many options to choose from. Here are some of the finest available plans. Compare Plans!
Fixed annuity plans are bought for specific periods of time, for example 5 years or 10 tears, and they earn guaranteed rates of interest. Your money is accumulated tax deferred, but is taxed as income when you receive it. The insurance company guarantees that you never receive less than your principal.The Variable Annuity
The variable income plan is derived from funds invested in stocks, bonds and sometimes money market instruments. There are no guarantees as to the amounts of interest or even the return of your principal. It is quite possible to earn a very large return on your investment but this is risky business. If the stock market falls you can stand to loose considerably. Money accumulates tax deferred.
There are certain hidden expense charges built into all of these plans which may cause you to rethink your purchase of one, even though you don’t pay taxes until you receive the income.Immediate Annuities
Let us suppose you find yourself with a very large sum of money. It may be that you accumulated it over a long period of years, may be you received an extra large bonus from you job, or may be you had a fairly decent inheritance. You may want to put this money in an immediate annuity. The insurance company would take your money and pay you an income. This income may be a life income or an income for a fixed period , for example. There are several other income options. With this type of plan you start receiving your income within a month after turning over the principal to the life insurance company.The Deferred Annuity
You may decide to fund your plan over a period of years. Your installments may be fixed or flexible. you can decide to put predetermined amounts into your plan each month or put the money in whenever you feel like it. Your money is accumulated income tax deferred. Upon receipt of your income or lump sum, say at retirement, you pay the taxes. Unlike IRA’s you can put as much money as you desire into the plan.
Recently got a lump sum in cash? It is usually best to take it in the form of an Income that you cannot outlive. Don’t you agree? Compare Plans!