Do Annuities Make A Good Retirement Strategy
At some point in your financial planning you will probably have annuities and retirement on your mind. Annuities are an important aspect of retirement planning. The definition of an annuity is “an insurance contract that returns payments of capital and interest on a regular basis.”
How it works is that either for the lifetime of the annuity or during regular intervals for a particular span of time the insurance company you deal with makes increasing pay out amounts or fixed amounts to you. It is important to note that annuities do not come with rescission rights. As well, modifications to them are not permitted once a contract has been issued by an insurance company.
When you purchase an annuity you buy it as a lump sum. The payments you receive from the annuity are related to the interest rate that is in place at the time you bought it. It is always wise to watch the markets closely and to buy an annuity when the interest rate is high. This will ensure that your annuity payments will be high as opposed to low.
Annuities and retirement tie into one another because essentially annuities offer the purchaser a guaranteed income. Before you rush out and buy an annuity you need to know that there is more than one kind. There is term certain annuities, life annuities, registered annuities, non-prescribed annuities, prescribed annuities, immediate or deferred annuities, and charitable gift annuities. Let us take a brief look at two of the most common types of annuities- term certain and life.
Term certain annuities as the name implies guarantee you an income for the length of the term you choose for the annuity. A term certain annuity must be brought to a close once you reach 90 years of age. If you pass away before the term of the annuity is completed then the money that is left to pay out to you becomes a part of your estate. Term life annuities generally pay out on a month by month basis.
Life annuities on the other hand guarantee a monthly income for as long as you are alive. In this case you have the option to add a clause when you purchase the annuity that says that the annuity will continue to be paid out to your spouse (your child or another family member) upon your death.
Annuities and retirement can go together but annuities can also be beneficial earlier in your life if you experience loss of employment due to a layoff, illness or accident. Before you buy annuities it is wise to speak with a financial professional to learn everything you can about annuities and how interest rates affect them.