WHAT SHOULD YOU KNOW ABOUT ANNUITIES? Rising interest rates are making annuities more attractive to investors. Annuity sales are breaking records set in 2008 during the Great Recession. Annuities can provide retirement income. However, they are also becoming an option for workers whose employers aren’t providing pensions.
Kiplinger’s recent article entitled “Annuities” explains that before considering an annuity, there are some basics you should know.
An annuity is an insurance contract where you pay an insurance company to invest your money, allowing it to grow tax deferred. In some cases, the annuity later provides an income stream, according to the contract provisions, which could cover a set time or be for life. Therefore, annuities are insurance against outliving your savings because they pay for as long as the contract provides, even if the underlying principal and any earnings have been depleted.
WHAT SHOULD YOU KNOW ABOUT ANNUITIES?
If you have a lifetime annuity and live a long time, you could get far more than you originally put in. However, depending on the terms of the annuity, it’s also possible that you might die before recouping your investment.
Annuities are classified in several different ways, including how they’re purchased and how the funds grow.
They can also be customized with different contract provisions known as riders. For example, an annuity could include a long-term care rider that increases your payout should you require long-term care. A rider could also have funds from an annuity go to a beneficiary should the annuity holder die before receiving the funds.
Note that these riders cost money, so the income payments will be less if your annuity pays an income stream. In other instances, an annuity may also pay a lump sum at a specified date.
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WHAT SHOULD YOU KNOW ABOUT ANNUITIES?
Reference: Kiplinger “Annuities”
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