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The article talks about retirement and the options available to choose an annuity. Annuity is an option available for a lifetime where investors invest money in a particular annuity and they earn a monthly check for a particular number of years. Annuity are beneficial for people nearing the age of retirement. Annuities are issued by insurance companies and mutual funds. The expenses as well as fees are high in case of annuities hence it is advisable to look for options and choose the right one. The amount that one may receive on a regular basis, depends on the kind of annuity selected. It also has add on functions which provide a regular payment to your nominees in case of your death. Annuity payments are subject to income tax and if withdrawn before the age of 60, they are subject to income tax and 10% withdrawal charges.
There are two kinds of investments, in one you invest a lump sum and the company immediately starts making payments. Depending on your choice, you get an option to receive a fix amount or a fluctuating amount regularly. In deferred annuity, you have an option to invest a lump sum before certain years of your retirement and the investment has a chance to grow over the years. Hence when you reach the age of retirement, the monthly returns depend on your portfolio or total amount invested.
There are three types of deferred annuities. One is fixed which give an annual return at a predetermined rate, another one is variable deferred which you have an option to invest in stocks and bonds offered by the company and at the end of the period your annuity depends on the amount of investment made by you. Lastly, there is equity indexed annuity which is based on equity shares, A minimum return on your investment is guaranteed which ensures to save you from the market decline or market fluctuation risks. If you already hold assets that product enough income for you then annuity is not a good option to invest in.
You should only consider an annuity if you have reached the age of retirement and have not saved enough for the post retirement period. You have no family to support nor any regular income from any other source, you want your spouse or children to receive regular income after your demise. These are a few reasons why you should prefer annuity.
There are advantages like a steady income as well as disadvantages like the high fees charged by the companies. The sales pitch also make it a lucrative option to invest in but you should consider your savings and your monthly requirements before you invest in an annuity. It could be a long term investment and you do not want it to go wrong, hence it is advisable to look for all the available options and study the fees as well as returns before you determine to invest in an annuity . In case you hold enough equity or other assets which provide good amount of returns then there is no need to invest in an annuity scheme.
How to Select and Shop for an Annuity. (n.d.). Retrieved from Wall Street Journal: http://guides.wsj.com/personal-finance/retirement/how-to-select-and-shop-for-an-annuity/
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