Guide on Getting the Right Benefit from Your Annuities
When it comes to personal finance, annuity is the most talked about topic. Though mired in considerable amount of controversies, annuities have managed to survive and flourish. This may be due to the benefit that the retired community gets, but the major reason for the continuing prosperity of annuities is the commission that the agent or broker gets on selling annuities. Getting to know the basic facts about annuities and risks involved will help you take wise decisions on your annuities.
Why People Go for Annuities?
Annuities are basically retirement products, which aid in safeguarding your savings, increase them, and also generate a steady source of income for you in future. While buying the annuities, a contract is drawn between you and the insurance company or agent by which the company should make payments in future or immediately. The payment from the annuities can be done as a wholesome amount or split part payments over a period of time.
Monetary Compensation
With annuities, you can be assured of periodical payments that can be a source of income for you in your retired life or help your spouse lead a financially stress free life. In the event of your untimely death, the payment will still be made to your beneficiary. A key benefit you get with annuities is you need not pay tax for the income you get from the annuity and profits from the investments made on the income till you get back the payment.
How Annuities Work?
Annuities essentially have two main stages which include
- Accumulation stage where the payments are made by you, which can be split up and invested in different options. You also get to save some of the money in a fixed deposit, where you get a steady interest from it.
- Payout stage is when you get back the money you have saved. The income and profits from investments that have been made so far will also be received. The whole amount can be received as a single payment, or you can also receive them in the form of monthly payments.
Risks Involved
There are several things to consider when you sell annuity like
- The insurance company should be financially sound, so you get the money during the payout stage.
- Variable annuities are made for long term benefits only. If you decide on withdrawing the money early, you may need to pay huge taxes and other charges.
- Variable annuities are just like mutual funds and should be considered carefully before you opt for them.
With time, the annuities become more of a burden as the tax rate on the income you get from the annuities including the sub accounts in variable annuity and equity based funds is calculated at normal income rates. And the profits you get from the investments are taxed. Further, the absence of appreciation in cost basis can cause difficulties to your beneficiaries, as they need to pay huge taxes to get hold of the investment returns after you. The commission paid to the agents who sell the annuities for you is a huge amount too.
Author Box:
Lewis Grizzard helps you analyze the profit side carefully when you invest on equity based funds and annuities. He also guides you on the procedures like how to sell annuity, availing tax benefits, studying risks, etc.
Category: Finances
