How An Annuity Can Help Your Retirement

A lump sum distribution can be made with an annuity. Annuity payments are guaranteed in most cases. However, there are different types of annuities and you should understand them before investing. This will help you make the right investment decision.

The present value of an annuity, also known as the discounted annuity value, is simply the amount of money that you could receive if you had kept your annuity for the amount of time specified in the agreement. Some annuities have a guaranteed minimum period of time for which they are valid. The remaining amount of money in your annuity grows each year.

The amount of interest that you pay on your annuity varies, with rates usually varying from six percent to ten percent per year. However, the amount of interest you pay is in addition to what you will get in your payments, which are generally made on a monthly basis. Your payments may also be tax deferred until the holder of your annuity reaches a certain age. Most annuities are paid within five years of the purchase date, although some companies allow longer deferment periods.

On average, a company’s annuity policy holder receives a payment equal to the present value multiplied by the annuity rate for their annuity. Therefore, the amount of payments received over the years is equal to the present value times the number of years your payments are guaranteed. While paying into an annuity over a number of years helps to protect your income from income taxes, it does not necessarily increase your net worth. In fact, it is possible that the payments you make will actually reduce your wealth.

For this reason, many investors prefer to pay into an annuity-immediate annuity over the guaranteed annuity option. With these types of annuities, you receive immediate payments once your initial investment has finished growing. These types of payments are often much less costly than the more expensive guaranteed annuities. While the future payout is dependent on the growth of your investments, these types of annuities are far less risky because they are paid out based solely on returns.

In summary, an annuity can be a very useful financial advisor tool. However, it is important that you learn how to manage an annuity and understand its pitfalls before purchasing one. A financial advisor or a financial planner can help you find the best options for your specific retirement plan.