Annuities are often used by retirees who want guaranteed income to supplement their savings. They can offer a steady flow of payments through your later years or even until the end of your life.
The term “annuity” refers to a contract between an individual (you) and a financial institution (or insurance company). You invest by paying either a large amount upfront or by paying regular premiums for a certain amount of time. The institution then releases a steady and reliable stream of payments back to you, providing a stable income.
Annuities offer security to those whose retirement or savings may not be enough to support their standard of living in their later years. There are several different types of annuities available, and the structure of the contract can vary based on specific factors.
Your annuity must be fully funded before any payouts can begin. This is called the accumulation phase. In a common deferred annuity, regular tax-deferred payments are made during the accumulation phase. This phase may last several years, depending on the terms of the contract. On a date selected, payouts will begin and last for a predetermined time.
Alternatively, the annuity could be established at once with a lump sum investment called an Immediate Annuity. This option allows you to take a large amount of money (inheritance, settlement, lottery winnings, etc.) and trade it in for a more reliable stream of income that starts paying out immediately.
During the accumulation phase, premiums paid to your financial institution are invested into an annuity fund. This fund will contain different securities, stocks, and bonds. The investment earns returns that are reflected once payouts begin, also called the annuitization phase.
It is very important to note that annuities are not liquid. If you need access to cash or assets for any major life events, you should consider waiting until this is no longer a concern or finding another investment option. For this reason, annuities are often suggested for older individuals no longer raising families.
During the accumulation phase, which may last several years, investments are held in what is called a “surrender period” where the funds can not be accessed without paying a penalty.
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At Agape Insurance and Financial Group, we can help determine hidden fees, provide guidance on complicated tax issues, and ensure you get the right type of annuity benefits. Reach out to us today for more information!