Annuities are not a new concept, although they have become more complex over time. The first annuities were documented in the Americas in the mid eighteenth century by Pennsylvanian ministers, and it was not until the beginning of the twentieth century when they were available for purchase by the public.
What is an annuity? HOW CAN YOU have the advantage of an annuity?
So, what is an annuity, and how can you benefit? The simple answer is that an annuity is a contract between you and your insurance company. Annuities can only be sold by agents specifically licensed to do so, and each insurance company is regulated by individual state insurance commissions. Your insurance agent must have a life insurance license and a license from the National Association of Securities Dealers (NASD) and Securities and Exchange Commission (SEC).
If the insurance company goes bankrupt, other licensed companies, the state is required to honor your contract. The terms of an annuity is that you pay a sum of money to the company (either a lump sum or a series of payments), and they will make scheduled payments to you immediately or delay payments until after a certain time.
Unlike 401 (k), annuities grow tax-deferred and you will not pay taxes to the Internal Revenue Service (IRS) before you start withdrawing funds from your annuity. Unlike other savings options through a bank that can calculate and charge an annual tax on your interest, a tax-deferred annuity your tax is based only on the final accumulation of the annuity at the time of withdrawal.
Annuity TYPES: FIXED annuity, VARIABLE annuity, equity-BASED annuity
In addition to determining when you will receive money from an annuity, you can also choose between a fixed and a variable annuity. A fixed annuity guarantees a minimum interest rate while the annuity accumulate, and guarantees equal check amounts when you withdraw from the annuity.
A variable annuity offers various investment opportunities for funds, with a mutual fund as the most common choice. A variable annuity offers no guarantee for the payments, and income from this annuity will vary depending on the investment vehicle you chose. Sometimes you may be offered an equity-based annuity that will determine your rate based on an equity index, such as the S & P 500
CHOOSING BETWEEN a deferred annuity and immediate annuity PLAN
Deciding between a deferred and an immediate annuity is a matter of personal preference. If you prefer to save a long-term goals like retirement, and have no immediate need for money, you should consider a deferred annuity. It is important to remember that if you choose this type of annuity is the penalties for early withdrawal. IRS imposes a standard ten percent penalty, in addition to the tax on accumulated funds, if you withdraw money before age 59 ½. Your insurer may also charge surrender fees for early withdrawal.
3 METHODS OF PAYMENT OF DEFERRED ask annuity
If you wait until retirement to withdraw money, there are three ways to ask for a payment from a deferred annuity. You can:
1) Ask for a one-time benefit payment or
2) Take out money when you need it or
3) Annuitize and receive a set dollar amount each month for as long as you live