A goal of many in retirement is to have some money tucked away to help them enjoy it. It’s possible for that money to grow tax deferred and be passed on when that person is gone, yet still be accessible for them while they are here. When seeking a safe place for a nest egg, an annuity is a great option. With a little searching the best annuities can be found.
An annuity is an insurance product designed to keep an invested sum of money secure. Payments will be made out of it to the annuitant (or annuity owner) at a later date. It can supplement income lost in retirement, and will continue to sustain the spouse after the annuitant’s passing. Most are more familiar with annuities than they might think; both company pensions and Social Security are forms of them.
There are two annuity types, fixed and variable. Fixed programs have a set rate of gaining interest and the invested money grows steadily. Variable products share in the stock market, so the values will fluctuate. It isn’t wise to have aggressive investments when the turn around time is limited. There are some companies that offer ways to get the gains of the market with none of the losses. They can do this by putting a cap on the earning percentage.
The interest an annuity accrues is not taxable if it remains unused. This makes it a much more attractive way to save one’s money than in a typical savings account. The rates of fixed annuities have the tendency to be higher than most products offered at a bank. Though a variable annuity can only gain if the market does, their growth is also tax deferred.
Another great benefit to annuities is the fact that they bypass probate. These products and life insurance are the only ones that can make that claim. The money left after the annuity owner passes away will go to the named beneficiary with no inheritance tax attached. They are perfect for preserving a legacy.
The annuity amount is set aside for a certain number of years. Once that time is up, payments determined by several factors will start coming in. A good product will have several payment options from which to choose. There are ways to have the interest only skimmed off and be paid monthly or quarterly. That way, immediate income is available without touching the principle sum or breaking the agreement. Be certain to have the contract include the surviving spouse if there is one and give a specific beneficiary.
Any just contract will have a 30 day time frame to be cancelled. Beware of several factors if money is pulled out before annuitization begins. There is a federal penalty for any sum taken out before the owner is 59 1/2. Most companies charge for withdrawals, but a good program should have a certain amount that can be taken per year without one. The withdrawal charge should decrease to zero by the last year of the program. The penalties should never be too high, since the money does belong to the annuity owner and not the company. Any money accepted must be claimed as income for tax purposes, so make sure it will not take the individual to the next tax bracket.
The first step to finding the best annuities is finding a reputable insurance company. Look for one that specializes in the senior market and understands the needs of retirees. Then just sit back and relax as the money works for the one who is saving it. Take that hard earned permanent vacation in style!