Category Archives: Annuity
Many people are worried about thinking how much money will they have once they retire? Many people have become a lot cautious after recession and they are forced to think about their future. Whenever they come to know about new options to investment, they will want to explore it in every possible way. In a situation like this, a changeable annuities is one of the best investment tools.
Variable annuities are a good source of steady return in the form of interest income. The rate of return changes every year is changing every year, hence they are also known as changeable annuities. Many people take is as a long term investment alternative. It will give you lifelong saving option with a steady stream of income.
Variable annuities are available in variety of schemes. All annuities are not the same hence you should have a perfect knowledge on how to choose the best one. Here are some factors that will determine the changeable annuities that is the most suitable for you.
Ratings : There are different companies in the market that offer variable annuities. These companies are given financial strength ratings according to their performance over the years. As per the ratings, the best company is preferred in the market. Be very careful in choosing the company because sometimes, you will find a company in the market that does not have a good reputation when it comes to paying claims.
Expenses : variable annuities are not offered for free. You need to pay a certain charge in order to get their services. These fees come under different headings and they also vary from one company to another company. Therefore it is a good idea to shop with different company, read their terms and conditions and the fee structure before making the final decision.
Withdrawal : It is often advised that you hold your investments for the entire duration. But there may be times that you might have to make a withdrawal due to emergency. Hence you should look for a scheme in which the withdrawal is easy and straightforward. Sometimes you will find a company that has a very complicated withdrawal process and they also charge a special fee with taxes for early withdrawal.
Retirement : There are some variable annuities that may be not be very beneficial after retirement. So you should do a thorough research on the different schemes and check out the retirement benefits on offer. It will be an added benefit if the changeable annuities can be placed in a retirement account. This will allow you to get steady income after retirement. You can defer taxes on your variable annuity. The retirement benefits can make the changeable annuities plan ideal for you.
Flexibility : Interest rates on the variable annuities changes every year. If the interest rate falls below a level, you will feel satisfied with your investment. You can easily change your investment strategy and does not have to necessarily agree to a lower interest rate. You can alter your investment if the company offers sub accounts. Check this feature before making your final decision.
In many cases, annuities are used as retirement investment vehicle. They provide the investor with a tax deferred way of calculating interest. There are many types of annuities for different investors with many options, their opportunity for a sizable return, and their safety. Variable annuity is often considered as the riskier annuity. The investor is able to invest the annuity in the stock market, or in mutual funds. Any person over the age of 60 will receive monthly payments, depending on the results of the investments.
If the investor is not 60 years of age, he will still receive the tax benefits, but he won’t get the payment until he reaches 60. Variable Annuity can be for a fixed time period or for life. Most of these annuities offer a money market sub account. This will allow the investor to switch to a secure fixed rate, at any point of time.
Advantages of Annuities :
If you look at the stock exchange market, especially S & P 500 who have an annual return averaging 12%, while historically Fixed Annuities, Treasury Bills, and secure Bonds usually offer single-digit interest rates. A Variable Annuity will allow you to earn much higher returns.
All annuities are tax deferred, and it will be beneficial for many investors over other investment vehicles. It will provide you inheritance probate-free, thereby allowing your loved ones to avoid estate taxes. You can also provide gifts which are completely free of tax up to $10k per year, per person.
Fixed annuities do not provide such higher liquidity like variable annuities. You can make withdrawals as much as 10% annually in the first year without any sort of penalty. And if there is any market change and you are not feeling confident about it, you can move to a fixed rate of interest, providing a very secure investment vehicle. Based on the current market conditions, you can change you risk/return.
Disadvantages of Annuities:
Variable Annuities are not that secure like Fixed annuities or CD’s. When you put your money in the market, it means that you are willing to risk your share. There are some management fees, just like a mutual fund. You must check the commissions or the fees involved.
This investment will give you enough liquidity, but it is not the right one if you need that money tomorrow. Income withdrawals before the age of 59.5 years or by more than the allowable percent per year will result in a 10% IRS penalty.
You must do all your research before putting your money in the market. Overall variable annuities are a good investment vehicle to grow your nest egg tax deferred, but at the same time, there are lots of risks involved. Always seek professional help before making this important decision.
Nowadays consumers have a variety of choices. There are a number of annuity products available in the market. One of the most popular annuity products is fixed annuity. It has proved to be a very valuable tool in case of retirement planning. Fixed annuities are available in two major forms. One is for those who have a deferred payout and the other one is for those who carry an immediate payout. The immediate annuities look for payout income on inception. Deferred annuities tend to defer payment to a later date.
Fixed annuities are usually compared with the certificates of deposit by the investors who are seeking safety. Both of them are believed to be lower risk investments, although they are actually a lot different. Like any other financial products, one should always evaluate the pros and cons while determining the product and see which one is more applicable in case of your financial needs. There are certain factors which you should always consider, while you are trying to figure out a plan that suits the best in your case.
* The first major factor is to consider the rate of return. Fixed annuities usually tend to base their interest rates on the current market conditions along with the time to maturity. The longer you keep waiting for the maturity, the yield would be higher. The fixed annuity rates tend to be traditionally higher than that of the CD rates due to the longer maturity periods and rate conditions.
* Another major factor is that of liquidity. CDs might provide for a much shorter time horizon, yet it does not mean that they are liquid in nature. When you purchase a CD, you are bound to stay with the time period for that CD, which in most cases happens to be for a year. In case, if you withdraw any amount of the principal prematurely, you would be subjected to interest penalties. Fixed annuities offer penalty free access of around ten percent of the purchase price annually, whereas some might take it collective up to a definite purchase.
* Another important factor is that of tax liability. In case of tax deferred fixed annuities, the earnings within the annuity are not subjected to taxability until they are withdrawn. This may offer its own advantages, like tax control, along with a higher potential for growth.