Retirement is the time when you plan to rest and reap the benefits of years of hard work. But have you ever thought about funds? Your money is not stored in Pandora’s Box so that it would never end. It is a limited amount which will definitely vanish one day leaving you helpless with empty hands. So what to do? Here is a solution- annuity. Yes, they are the only plans on which you can rely to dream of a financially secure old age. But before marching further, you need to be aware with what are annuities and types of annuities.
What are annuities?
Annuitiesare a fixed amount of sum paid to an individual, usually a retired person. They are sold in form of contract by the insurance companies. They are paid generally for the whole life of the beneficiary. There are two types of annuities deferred annuity and immediate annuity. Read ahead and know about types of annuities.
Types of annuities
There are mainly two types of annuities in which you can invest in-
- Deferred Annuity
- Immediate Annuity
In deferred annuity, the user has to deposit funds with the insurance company. The user has to invest in a fixed, equity indexed, longevity or variable annuity contract. The name deferred refers that the taxes on the investment gains are deferred till user withdraws the money. The clause to be noted here is that if you withdraw money before the age of fifty nine and a half, the money will be subject to ordinary tax plus 10% penalty.
Deferred annuity can be converted into immediate annuity, after passage of a fixed amount of time and in a way you are saving for money to form a stream of pension when you will be old and retired.
It is boon for retiring persons and is purchased with a one- time payment which gives it the name “Single Payment Annuity”. It pays a fixed income that starts absolutely immediately after the insurance is purchased. It continues till the user desires, as mentioned in the contract or for till the time the beneficiary is alive. It is an established rule; the longer the term of payment, the more the amount of annuity. They are best for those people who are worried about outliving their savings and provides them lifetime support.
Plan your retirement with annuity and enjoy the joys of old age!