Many people are concerned about how to save their money. They are also concerned about how they are going to be able to survive when their retirement years arrive. Most people are making decisions now and doing their own investing because they don’t have any retirement plan, they are weary of the social security system or they would like to have extra money when retirement arrives. Many of these people are looking into annuities.
What is an annuity? It is a financial contract between a person an insurance company. There are two basic types of annuities, the immediate annuity and the deferred annuity.
You put money into both of these types of annuities. The difference is when you will start receiving your payments.
In the immediate annuity, you receive your payments usually within a month. Thus, the name immediate annuity.
A deferred annuity is used mainly to start accumulating money. It is a good way to save. The time of investment depends on the terms you use when you set up the annuity. Most people allows their deferred annuity to ride for about twenty years. If you pull your money out before that time, you face penalties. Yet, you can elect to have your interest sent to you each period or added on to your balance (depending on the contract).
You also need to consider what type of interest rate you want. If you choose the fixed rate annuity your interest will be based on the principal within your annuity and what the interest rate was at the time of signing the contract. If you choose the variable rate annuity than the interest will be based on principal plus the current rate of interest at each given time period. If the rates are high, you make more money. If the rates go down, you loose money.
You should also think about the expenses associated with every annuity. If you choose to go with the variable rated annuity your fees are usually larger than the fixed rate. The types of expenses you should consider is maintenance and contract fees and things like that.. These fees will be different depending on which insurance company you use. Read over all material before signing your annuity and handing over your money. If you don’t understand anything ask the insurance agent handling your annuity.
If you chose the immediate annuity with the lifetime option, check to see what happens when you die? Will all proceeds left be given back to the insurance company or your heirs. You need this information recorded in writing.
One reason people are turning to annuities are the tax breaks. When you choose a deferred annuity you do not have to pay any taxes on it until you cash in your annuity. If you chose an immediate annuity you only have to pay taxes on the payments you receive, not the principal.
Before you sign up for any annuity make sure you understand everything. Also, you should comparison shop between insurance companies. First, check to see how long they have been in operation. Will a newer company be in business as long as your investment period? Does their rates seem reasonable? Do they offer any bonuses. (Some companies offer sign up bonuses, bonuses if you invest said amount). What is the surrender fee for the annuity? (Things happen sometimes that we don’t expect). What is the insurance companies ratings? Is it financially secure? Do they make payments on time? You can check out on any insurance company at your library or by contacting your states Department of Insurance.
Yes, there is a lot to think about when dealing with annuities? But there is a lot to think about when investing period.
You can call the National Insurance Company with any questions you have about annuities at 1-800-942-4242. The help-line can also send you a booklet called: A CONSUMER’S GUIDE TO ANNUITIES. This book lists all terminology and outlines the different kinds.
Do your homework? Think about your current situation or the possible situation you could be facing in the future