An annuity is a financial product that allows you to generate income during your retirement. It is also a good way to securely invest money in the longer term. You can purchase annuities from many different insurance companies.
You can find annuities in many different forms, with different types of benefits and at different prices. To help you understand how annuities work, here is a comprehensive guide that explains the key concepts, opportunities and risks of annuities.
What Is Annuity?
Everyone is familiar with stocks and bonds. Although these are a type of investment, they are not the same as an insurance annuity.
Unlike many banking deposits or investment products, an annuity is not a straightforward concept. It is made up of many different elements. However, if you understand the main components of annuities, you’ll be able to purchase one that meets your needs.
An annuity is a valuable financial instrument that allows you to generate an income during retirement. These products are typically sold by insurance companies. You can read about different annuity types in this article.
Annuities are generally used for the following purposes:
- To help you save money for retirement
- To provide you with a stream of income during retirement
- To guarantee your savings in the event that you reach old age
- To protect your money against market volatility and inflation
How Does It Work?
There are many different annuities. They differ depending on the benefits they provide, as well as the costs and risks. However, all annuities share the same core principles. Here is an overview of the key aspects of annuities:
Annuities are portable (you can transfer them to another person in the event of your death).
The income is tax-deferred. This means that income payments are not subject to tax at the time that they are made. Instead, income payments are deferred until the owner withdraws money.
Most annuity benefits are guaranteed by the credit-worthiness of the insurer.
You can withdraw money from annuities before they mature (subject to administrative fees and penalties).
Why Get Annuities?
Annuities are safe investments. You can buy them with a lump sum of money that you can afford to invest for many years. You never really have to worry about losing your investment because you can use the annuity to secure your retirement.
You can also utilise the annuity to pay for your family during retirement. It is a good way to ensure that your family does not have to worry about money when you are gone.
If you are concerned about inflation eating away at your savings, then you can also protect your savings with the annuity. Although inflation can be a problem, you can use the annuity to grow your money.
Types of Annuity
1) Fixed Annuity
This is the most common, traditional form of an annuity. As the name suggests, the annuity ensures that you get a fixed amount of income during your retirement.
With a fixed income stream, you can guarantee your income during retirement. The income amount is fixed, and you can stop receiving payments only if you cancel the annuity.
2) Variable Annuity
This is similar to a pension plan. The annuity provides a pension, but you are able to earn a variable income. You can control the percentage of income that you receive by altering the annuity.
This is ideal for people who want to keep their income steady but expect to live longer. You can get the most out of your annuity with a variable income stream.
Conclusion
Annuities differ in quality, cost and risk. You can choose from different investment products that can provide you with a steady income. You can buy annuities to help you save for retirement, secure your savings or guarantee an income for your family.
If this is something you are considering, you will want to talk to the best financial advisers in Gold Coast. At New Wave Financial Planning, we explore various financial solutions to your pressing problems. Consult with us today for more information.
