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Immediate Annuity: A Smart Move

Many young people ranging from the ages of 20-30 years old tend to take for granted the importance of immediate annuity. Many for that matter do not have a clear understanding of what an annuity or immediate annuity is. An annuity is a contract which more or likely is contracted by a single individual, which in over a period of time will pay for life insurance or a single premium which will be given back to the payer over a span of time. Most people who pay annuities do not use this for the purpose of saving up for future need or use but to gain more money from interest and a bigger withdrawal of their money and at times for reduce tax payments. There are two more likely things to occur in an annuity-the customer deposits payments into an account and earns which is called the deferral phase and when a customer can withdraw all or received payments over a span of time which is the income phase.

An immediate annuity is a form of an investment agreement (policy) with an insurance company where you (as a policy holder), purchase a guaranteed stream of income. Depending on the kind of annuity you have purchased, the insurance company will provide you a contractual guarantee. The insurance company will calculate the amount of monthly income your money can give back to you, based on the type, the term, your age and gender to enable them to calculate your life expectancy.

There are several choices you can choose when you opted for an immediate annuity. Do you want a maximized income or a lower payout that would rise with inflation? Would you prefer a fixed guaranteed payout or a variable payout that depends on the market movement? You can also determine an income payout that lasts for a specific number of years or a guaranteed income for life.

So, before sealing that contract for an immediate annuity, here are some of the key points you need to know if it is right for you: a guaranteed lifetime income, you have an average or above average life expectancy, you know that your annuity payout is a fixed monthly amount, it is part of an investment plan, you realized that funds placed under an immediate annuity will not be handed back to your heirs. Once you purchased the contract, there is no turning back and you cannot cancel the income payout that you have nominated and request back for the remaining lump sum of your money. If this happens, you may have to go to a company that will purchase your income stream at a discounted price. It would be prudent that you have explored other alternatives and options that can make your immediate annuity flexible.

A Single Premium Immediate Annuity offers security shielded from market fluctuations that can put your hard earned money at risk. You have the flexibility to choose the frequency of your payment to meet your financial requirements. The stability if provides assures you of income that you cannot outlive. You have several income payment choices such as fixed period, fixed amount, life term, life with period certain, life with refund, joint and survivorship. There are two phases of an immediate annuity: the Accumulation phase and the Payout phase. If you purchase a deferred annuity, it will accumulate earnings on a tax deferred basis. The payout phase begins when you decide to start receiving income from your accumulated fund account. If you purchase an immediate annuity when interest rates are above average, you can expect a higher payout amounts. If you purchase it when interest rates are unusually low, then you will get a lower payout amounts. Timing is also important in investment. Also, be wise in choosing your insurance company. Make sure that they are reputable, and has a good track record in their investment portfolios. Bear in mind that the amount you invest should be within the maximum limits covered by the insurance guaranty association.

Annuity defined, is more likely closer to the definition of immediate annuity in terms of theory. An immediate annuity is also a so called insurance policy. The customer will be in a contract paying a sum for a span of time, and is guaranteed a sum of money for every periodic payment. The payment or sum of money paid either per month or per year may increase with time so would the income or gain of the customer and may be able to get the said payment after a certain period of time. Usually immediate annuity may be set to vary in performance such as by setting up a bond or an equity mutual fund. The use of an immediate annuity may be to give pension to those who would retire and would serve as a means of income. The reason thus for immediate annuity is that it serves as a saving process which shall be disseminated to the customer monthly or so and also lessens the tax deferred growth.

At times, a deferred annuity may work as an immediate annuity. This is when the deferred annuity is annuitized and will work as an immediate annuity however this is with a lower payout monthly and some payouts may be taxed. Purchasing this sort of annuity guarantees a customer a payout per month after paying for it. An immediate annuity however should not be mistaken as a deferred annuity this is because a deferred annuity serves as a means of pension for the customer and withdrawing the saved money would be taken. For better understanding on this matter, for those planning an early retirement can succumb to this sort of annuity. It may serve as a means of income after a certain period of time. Unlike the deferred annuity where the customer withdraws only what has been paid, the immediate annuity allows a customer to gain income from all the payments made. Hence, upon withdrawing the savings, there is also additional gain which is not taxed hence for those who are still choosing between annuities, the immediate annuity is certainly the right choice.

Do some research and be prudent. Ask several financial experts; seek their advice before you commit to an immediate annuity investment. At the end of the day, your money is in your hands. You worked hard over the years for money, now it's time for your money to work you. It's payout time!

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