Annuities are getting a pretty bad rap when people talk about investing and options for saving for retirement. Part of the problem is that people don’t understand much about annuities or what the benefits of owning them actually are. What are annuities? They’re basically just an insurance product that will at some point create a source of income of the owner. Here are some of the benefits.
1. It’s going to help fund your retirement.
One of the most obvious advantages of buying annuities is that they can help fund a person’s retirement. Fewer and fewer companies in the United States are offering retirement plans for their employees, and without taking the proper measures ahead of time it can be tough to retire on time and comfortably.
2. The taxes are deferred.
This is true of a number of types of retirement measures, but the benefit is clear. Fixed annuities, for example, pay guaranteed rates of interest so that the money put in to the annuity is untaxed means that it will accrue more interest than if it was taxed.
3. There are no contribution limits.
This is another important benefit of buying an annuity, especially when compared to other types of retirement options is that there is no limit on the amount an annuity owner can put into the annuity per year (unlike 401(k)s and IRAs).
4. Owners can choose how they receive the payout.
When it comes time to actually receive the funds, owners can choose from one large annuity lump sum payment or a series of payments over a period of time. If the owner finds that already have an additional source of income, the lump sum might be more beneficial; conversely, if the owner has no other source of income, she might opt to receive the payments.
There are a few different types of annuities (immediate, equity index, variable, and fixed annuities), and each one has it’s own specific benefits and disadvantages. Which one is right for you depends on what your goals are.
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