Immediate Annuity: A Subsitute Retirement Plan

Many of us are worried about what we are going to do at the age of retirement. Most companies do not offer any pensions. Plus, many people are afraid that social security will be completely bankrupt by then. What are our choices?

One choice is an immediate annuity. An annuity is a financial contract that you make with an insurance company. In other words, you pay money into this contract. There are two kinds of annuities, immediate and deferred.

If you need to start accumulating money, a deferred annuity is the way to go. But if you have a large cd, a large bank account, etc, all ready, you may want to check into immediate annuities.

With an immediate annuity, you put in a said amount, like you would a cd. The difference is that with an immediate annuity you can start receiving payments within a month. You can set up these payments for monthly, quarterly, semi-annual or annual withdraws. One good point about this is that unlike your savings account, you only have to pay taxes on the total amount you withdraw each year, nothing on the principal.

How do you set up an annuity? First, you find an insurance company that deals with annuities. Then you check their ratings. Each state has a department of insurance that can tell you about any insurance company within your state. Then you start building your contract.

You will make one lump payment. The size and time frame for your payments will be based on how much you put into that annuity in the beginning. You need an idea as to how you want to set up your payments. Then discuss your needs with the insurance agent.

Your next step will be deciding what kind of interest you want. There are two kinds of interest, fixed rate and variable interest. Fixed rate interest is just the way it sounds. A fixed rate; usually this is the rate of interest at the time you initially set up your annuity and based upon the amount you invested. If the interest rate goes up, your rate will not. But if interest rates goes down, your rate will not. Variable rates goes up and down as the interest rates does. When rates are high, your interest payments are high. But then again when they are low, so are your interest payments.

Some companies can arrange your annuity in a way that part of your principal is based on a fixed rate and another part is based on a variable rate. Talk to the insurance agent because each company is different.

You all ready know that you can set up your payments, monthly, quarterly, semi-annual, or annually. But you also have the option to set it up for a certain period of time or for the rest of your life. When setting this up, you need to find out what happens should you die before all of the payments have been distributed. Will the rest of the principal go back to the insurance company or to your heirs? Make sure you know this.

Another factor you should keep in mind is that with an annuity, you will be charged fees. These fees will depend on the company. You also will be faced with penalty charges if you take out money when it is not scheduled for withdraw. For this reason, you should not put all of your money into this account. You should invest some in a basic savings or checking account that is liquid. Unexpected expenses do occur.

Should you invest in an annuity? It depends on your situation. As in investing period, make sure you know all the facts.

You can call the National Insurance Helpline at 1-800-942-4242 for any questions you may have concerning annuities. They even can send you a booklet that explains them and some of the terminology associated with annuities.

Good luck and happy investing.

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