Annuities are contracts between an insurance provider and a buyer. They can yield tax-deferred growth and guaranteed rate returns. But they may require a sales commission, and you have to deal with surrender periods.
An annuity is a series of payments with fixed intervals. They may be guaranteed for a specific number of years or the lifetime of one or more people. Money is paid from an investment contract just like a pension - certain amounts are deposited to a government office or an insurance company. The amount paid back includes principal and interest. Always remember that an annuity is not an insurance policy. Here are some pros and cons
Advantages
Annuities have understandable advantages. Annuity earnings are tax deferred. This features makes them more enticing than money market funds or other safe investments. With annuities, your money is accessible. Along with this are contracts that allow annual withdrawals that enable you to take out up to 15% of the account value per year without penalties. You can be assured that your money is safe with annuities. Most insurance companies are compelled to keep cash reserves to make this possible. Almost all states have a guarantee fund that reaches up to $100,000 per annuity, which maximizes security. Compared to other safe investments, annuities showcase higher rates of return. At present, annuities are averaging a 4% tax deferred in contrast to 2% taxable with CDs. In current trends, annuity yields should increase gradually once the economic markets stabilize. It can also guarantee you with lifetime payments when you annuitize. A study done by the New York Life and Wharton Business school states that fixed annuities that provide income stream are found to be one of the most excellent retirement income generators. Immediate annuities provide monthly income payments for your lifetime, but they are instantaneous.
Disadvantages
Annuities do have their share of several disadvantages. Annuity is not a good option if you prefer to have a chance that you will need all of your money returned to you in the short-term like, for instance, one to two years. If that is the case for you, it is suggested to invest money you will not need for at least the next five years. Just like any purchases, the merchandiser will receive a sales commission. You may also deal with surrender schedules that can be as long as 10 years. Because annuity contracts have surrender charges for withdrawing money before the contract matures, you are tied with the terms of contract.
Use this valuable info to decide whether or not to take advantage of an annuity.
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