Investing and Retirement Part 3: Annuities
When planning for retirement, there are important factors to consider for you future. Personally, I think one of the best ways to plan for retirement is to diversify your assets and investments long-term. Previously, we have previewed stocks and bonds, on this post we will examine annuities, what they are and how they work.
The basic layout of an annuity is one contract between you and an insurance company in which the company promises to make periodic payments to you, starting immediately or at some future time. The annuity can either be purchased in one lump sum, or it can be purchased through several premium payments. Some annuities provide a way to save for retirement while other are the means to retirement income. The difference lies in whether the annuity is deferred or immediate. An immediate annuity is one that you pay into then immediately begin receiving payments from the insurance company for the specified length of time. Alternatively, deferred annuities are paid into, by either lump sum or premiums, with the goal being saving up until retirement then receiving payments in the future.
Annuities are a type of investment that comes with several fees by the insurance agency, and is considered a tax-deferred savings product so the investor will owe taxes on the payments received. Despite the large fees that may be incurred, annuities often have large commissions with high interest rates. Annuities may not be for everyone, but if you have questions about how to plan for your future or if you’re paying taxes on your investments correct, contact us at the Center for Financial, Legal & Tax, Inc.