Commonly, when an amount of money is deposited and in return, a fixed amount of money is paid for a specified time after regular intervals of time is called annuity. Mostly these annuity investments are made in fraternal organizations and insurance companies. Most of the annuity investments are in the form of savings, investment vehicles and retirement money.
There are two types of annuities, variable and fixed. Besides some exceptions, like immediate annuities that return payments within 12 months or even immediately, both types of annuities are tax-deferred. This means that the capital earned from interest with variable and fixed annuities is taxed at a later time, that is, at the time of withdrawal of interests or earnings.
That being said, the annuity account holder is taxed only when he starts receiving the premiums or when he cashes out his capital investment or earnings from interests. Other than that, often times an annuity account holder may withdraw his funds but with a penalty unless that he is already 59 years of age. There are exceptions, though, in very limited conditions.
A variable annuity account holder commonly receives a death or survivor benefit. The benefit should be equivalent to the greater of the present market value of the variable annuity, or it can also be equivalent to how much fund that has been paid prior to the date of the account holder's death (minus any cash-outs, if any). When a person dies before he reaches the payout period, which means he dies before the first premium is received from the insurance company, those who are listed as his beneficiaries will be paid with the accumulated amount of funds available in his annuity account. The advancement of an annuity is commonly controlled by the general income taxes and death duty.
In the case of a fixed annuity, the insurance company will take all the investment risks. That is why you will have a minimum sum of money regardless of external factors. This annuity type is perfect for those who don't want to take any risks. Variable annuities represent the second primary category.
On the other hand, in variable annuity, the investor has to take responsibility of the investment risks, but the investment returns are higher. Normally, there is no guarantee and the higher returns on the investments depend on the performance.
The annuities are further sub divided within these major types into different sub categories like deferred and immediate annuities. These annuity types are based on the beginning time of the return withdrawals.
With number of different options, conditions, and variations attached with each type of annuity, these sub categories are also divided further into different types. Each of the different sub categories is designed to serve investors into different conditions and circumstances.
Choosing the most beneficial annuity program can often become a daunting task. If an investor hasn't hired an adviser yet, he should do so in order to get full and professional understanding about annuities. It's unwise to dwell in mistakes due to failure in the planning stage because there is a tendency for one to lose huge sums of money.
To gain the most benefit out of a chosen annuity, it is best that an investor looks at several criteria such as age factor, amount of investment, actual amount of fund needed during the retirement years and future market condition.
If you are about to choose an annuity type, you should think what your purpose is. Assuming you are about forty years old, you financial objective should gravitate around the desire to make more money. In this case, fixed annuities are not the best option because they save you from risks while not giving you higher returns. The fixed type is best for retirees.
However, at an age of 60, or at the time of retirement, usually people are more focused in protecting what they have earned so far instead of making more money or assets. Their age does not allow them to take risks and they mostly prefer to get a guaranteed income against their investments. This is where annuity (fixed annuities) plays its role by providing the best possible returns without any risk involved.
Annuities can be best possible options for the people who are retiring in near future or are already retired, if carefully combined with some other retirement planning investments. People may choose between deferred annuity and immediate annuity based on the years left in retirement. Deferred and immediate annuities are best suited when combined with other popular investment schemes.
It is observed that people who are retired are more cautious about their investments if compared to people with still time in retirement. This shows that age plays an important role in taking a risk on an investment. While people with still years in retirement can easily opt to take a risk by investing in less secure annuities for higher returns, retired individuals prefer to invest in risk free fixed annuities. Investment decision also depends on the asset, as with fewer saving, individuals prefer to take risk in order to get more out of their limited savings.
If an investor is afraid that his earnings may be affected by inflation, the rising living expenditures and COLA, he can include certain income riders to his chosen annuity program. The additional riders may provide elevated annual premiums and benefits so that the account holder is able to sustain living despite the increasing burden of expenditure.
The number of assets, the expected future expenditure requirements and the impact of inflation may affect the progress and the risks involved in an annuity. Based on the cash-flow of an investor and his expected duration of life, he may be able to choose the most suitable form of annuity or investment program.
There are two types of annuities, variable and fixed. Besides some exceptions, like immediate annuities that return payments within 12 months or even immediately, both types of annuities are tax-deferred. This means that the capital earned from interest with variable and fixed annuities is taxed at a later time, that is, at the time of withdrawal of interests or earnings.
That being said, the annuity account holder is taxed only when he starts receiving the premiums or when he cashes out his capital investment or earnings from interests. Other than that, often times an annuity account holder may withdraw his funds but with a penalty unless that he is already 59 years of age. There are exceptions, though, in very limited conditions.
A variable annuity account holder commonly receives a death or survivor benefit. The benefit should be equivalent to the greater of the present market value of the variable annuity, or it can also be equivalent to how much fund that has been paid prior to the date of the account holder's death (minus any cash-outs, if any). When a person dies before he reaches the payout period, which means he dies before the first premium is received from the insurance company, those who are listed as his beneficiaries will be paid with the accumulated amount of funds available in his annuity account. The advancement of an annuity is commonly controlled by the general income taxes and death duty.
In the case of a fixed annuity, the insurance company will take all the investment risks. That is why you will have a minimum sum of money regardless of external factors. This annuity type is perfect for those who don't want to take any risks. Variable annuities represent the second primary category.
On the other hand, in variable annuity, the investor has to take responsibility of the investment risks, but the investment returns are higher. Normally, there is no guarantee and the higher returns on the investments depend on the performance.
The annuities are further sub divided within these major types into different sub categories like deferred and immediate annuities. These annuity types are based on the beginning time of the return withdrawals.
With number of different options, conditions, and variations attached with each type of annuity, these sub categories are also divided further into different types. Each of the different sub categories is designed to serve investors into different conditions and circumstances.
Choosing the most beneficial annuity program can often become a daunting task. If an investor hasn't hired an adviser yet, he should do so in order to get full and professional understanding about annuities. It's unwise to dwell in mistakes due to failure in the planning stage because there is a tendency for one to lose huge sums of money.
To gain the most benefit out of a chosen annuity, it is best that an investor looks at several criteria such as age factor, amount of investment, actual amount of fund needed during the retirement years and future market condition.
If you are about to choose an annuity type, you should think what your purpose is. Assuming you are about forty years old, you financial objective should gravitate around the desire to make more money. In this case, fixed annuities are not the best option because they save you from risks while not giving you higher returns. The fixed type is best for retirees.
However, at an age of 60, or at the time of retirement, usually people are more focused in protecting what they have earned so far instead of making more money or assets. Their age does not allow them to take risks and they mostly prefer to get a guaranteed income against their investments. This is where annuity (fixed annuities) plays its role by providing the best possible returns without any risk involved.
Annuities can be best possible options for the people who are retiring in near future or are already retired, if carefully combined with some other retirement planning investments. People may choose between deferred annuity and immediate annuity based on the years left in retirement. Deferred and immediate annuities are best suited when combined with other popular investment schemes.
It is observed that people who are retired are more cautious about their investments if compared to people with still time in retirement. This shows that age plays an important role in taking a risk on an investment. While people with still years in retirement can easily opt to take a risk by investing in less secure annuities for higher returns, retired individuals prefer to invest in risk free fixed annuities. Investment decision also depends on the asset, as with fewer saving, individuals prefer to take risk in order to get more out of their limited savings.
If an investor is afraid that his earnings may be affected by inflation, the rising living expenditures and COLA, he can include certain income riders to his chosen annuity program. The additional riders may provide elevated annual premiums and benefits so that the account holder is able to sustain living despite the increasing burden of expenditure.
The number of assets, the expected future expenditure requirements and the impact of inflation may affect the progress and the risks involved in an annuity. Based on the cash-flow of an investor and his expected duration of life, he may be able to choose the most suitable form of annuity or investment program.
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