Retirement plans: two words most people under the age of 40 ignore and those over the age of 50 dread. When you start planning for retirement or looking over the retirement plans provided by your employer – such as a 401(k) – you’ll find out that there are many options available to invest in now and reap the rewards later. While IRAs are usually provided by banks, your insurance agency will provide another option: annuities.
Typically sold by insurance companies that also sell life insurance, a life annuity – more commonly referred to as just an annuity – is an insurance policy designed to help you save money for retirement. Payments are made over the course of years, with payouts occurring at a fixed time for the policy holder. Like with many insurance policies, there are multiple types of annuity variations, including how the payment is made, and how the funds are invested.
An immediate annuity provides guaranteed payments soon after initial payment. While most annuities provide tax breaks similar to other retirement plans, many immediate annuities do not and a percentage or all of the payment may be considered taxable income. These payments may be for life, or “period certain” as payments for a specific length of time. A deferred annuity is typically used for earlier retirement planning: income payments are deferred for a length of time, allowing the interest built in the account to be tax-deferred. Payout time is decided during the creation of the annuity.
A fixed annuity provides a fixed and guaranteed interest rate for investments into the account, and the money tends to be invested in low-risk, fixed rate investments such as bonds. In a variable annuity, your funds are invested in market-based stocks, mutual funds, or money markets. Depending on the policy you can move around where your funds are invested. The return on this annuity is volatile, and the rate of return will vary based on the performance of the investments. While fixed annuities usually provide less potential returns, variable annuities puts risk on the annuity holder for their investment.
An annuity is a personal policy usually taken out by the recipient (legal settlements sometime result in payment to the injured party in the form of an annuity) and usually the policy holder has a fair amount of control of the direct investments his policy funds. A 401(k) is a workplace savings plan, which provides benefits like contribution matching: however this retirement plan isn’t a direct investment like an annuity. Instead it’s a container for many different types of investment products, with your employer controlling the investment.
Want to learn more about annuities and see if they are the right retirement investment for you? Contact the H&K Insurance Agency in Watertown, MA today to learn more about annuities as well as life and personal insurance. We can provide you with a free quote on these policies, along with their benefits and coverages.