Many people have heard about annuities but really do not understand what they are all about. If you are one of those people perhaps this article will be of some assistance. Annuity quotes are from an insurance company telling you what your income from the annuity would be depending on the type selected.
If you want to have some extra money, when retirement time rolls around, and you want to have the money you invest earn interest without paying taxes perhaps this may be the type of investment you would be interested in. There are lifetime and short term annuities available.
Annuities are written by insurance companies who must be licensed by the state. They offer you a contract which will give you an income on money you invest. This requires that you make an initial lump-sum payment, deposit, premium, investment or contribution which will earn interest. There are a number of different annuities to fit many situations.
First, there is no limit to the amount of money you can put into this fund. There are fixed annuities and variable annuities. The fixed annuities can be broken down into immediate and deferred. In other words, an immediate annuity will start paying you immediately and a deferred puts off paying until a date you indicate.
Deferred annuities are further broken down into Fixed Index, Multi-Year Guarantee Rate and Traditional Fixed. The way the interest is compiled differs with each one. Variable annuities have a stock market portfolio and there is no guarantee regarding the amount of interest earned. It can be very high or very low.
The most important thing, when considering making an investment of this kind, is to contact the prospective company and discuss with them exactly what you want to accomplish. Do you want to have more income at retirement? Do you want a short term or a life term policy? Do you want a death benefit so that if you pass away your heirs receive what is left in the fund? These are all questions that need to be answered.
It must be remembered that the rate of return depends entirely on the type of product chosen. Some, such as variables have a fee attached that is charged with each portfolio transaction. One advantage that many people find is that you do not have to pay taxes on the interest earned until it is withdrawn. Also the funds are paid out as agreed in the contract.
Some people who have 401Ks or IRAs when they retire roll this money over into an annuity as they will not have to draw it out at a certain time as those investments require. It can stay in the fund and earn interest until you decide you want to start drawing on the policy.
People who are still working sometimes have a monthly amount deducted from their paycheck and paid directly into an annuity account. This allows the money to earn interest and build up until they are ready to stop working. This usually amounts to a considerable sum and helps greatly with their income upon retiring.