Finance with Chocolate Sauce

With pensions a thing of the past for many, annuities have become more popular.  In use since Roman times, annuities are not a new concept. Though expensive, their benefits are worth the cost to a growing population.

  What is an annuity? – An annuity is an insurance instrument that can pay a stream of income, and can be used like a personal pension. That income stream may used as part of one’s retirement strategy.

 Annuity types– There are many types of annuities. But for our purposes we are discussing two types of annuities: Deferred and Immediate. An immediate annuity begins payouts immediately and with a deferred annuity one chooses to defer income to take advantage of a time of potential growth, called an accumulation period.   

Advantages of an annuity – 1.) deposits, or investments, placed in an annuity grow tax deferred.  While money is in the annuity you do not pay tax on the earnings.  2.) Life-time payment. Insurance companies guarantee a certain payout, or percentage, for life. 3.) Many deferred annuities allow you to invest in the stock market. And they offer – for additional   guarantees that you will not lose your investment through stock market volatility.  

 Disadvantages – 1.) annuities can have costs that are double a standard mutual-fund investment.  2.) Locked-up assets – money that you deposit into a deferred  annuity generally has a surrender charge for the first eight or so years. You can receive a standard payout as a percentage, but if you remove money deposited in a lump sum, there may be deferred back-end charges.

 Are annuities right for you? Only you can make that decision. Talk to a trusted advisor and think about what suits you.

 

 

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