Annuities Are Your Retirement Income
An annuity is basically a contract you make with an insurance company. You make either a single payment, or a series of payments to the insurer. In return, they will give you back a fixed amount every month, starting immediately, or after some period that you have agreed upon. Typically, annuities will provide for tax-deferred earnings growth and may include a death benefit.
With a retirement annuity, you can invest a lump-sum amount just before retirement, when you may receive a large amount from fixed deposits or work benefits. This amount goes towards making the one-time payment for the retirement annuity. The payout usually starts after one to twelve months and gives you an immediate income when you start retirement.
Annuities are a good way for retirement planning. During your working life, you can pay a small amount every month to the insurance company. Over a period of years, this can build up into a healthy amount in your account. Depending on the type of account you have chosen, fixed or variable, your money will be earning interest or may be invested in various equity markets or mutual funds.
The pay back from the insurance company starts when you retire. Depending on the scheme you had chosen, these payments may be for a fixed period, say 20 years, or they may continue for your lifetime. In a fixed annuity scheme, the payments are fixed, while in a variable scheme, the periodic payments will depend on how well your investments had performed.
An indexed annuity takes into account the changes in one of the well-known equity indexes. Returns vary based on the changes in the selected index. Usually there is a guaranteed minimum return. Equity-Indexed annuities give you the best of two worlds by combining the features of fixed-return traditional annuities and the equity market.
Both variable annuities and securities work in a similar fashion, and are regulated by the SEC. However, fixed annuities work differently and are not. An indexed annuity contains features of both insurance and securities, so depending on the combination, it may or may not be treated as a security. However, the SEC does not usually regulate them.
- Kenneth Nuss
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