A guide to investing in annuity plans
Guaranteed income during retirement is something that many people dream of. Hence annuity plans have many takers. An annuity is a contract between an individual and an insurance provider in which the former will make a lump sum payment and will get a steady income after retirement. Since pension plans are less common for employees in the country, annuity plans are preferred by many. Annuity plans can also be used to cover specific goals such as principal protection, legacy planning or long-term care costs. Annuity payments are mostly based on your life expectancy.
In annuity plans, you don’t need to pay insurance premiums for an indefinite period. After a predetermined period, the annuity plan will start paying you back. The premiums can be paid as a lump sum amount, or monthly, quarterly or annually. Immediate annuity plans are also possible in which you will get payments immediately after you buy the plan. In such plans, you will need to pay a lump sum amount and start getting income after one month to one year. An immediate annuity calculator will help you decide how much you need to pay at once to get a steady income later. Read here everything you need to know before buying an annuity plan.
What are the benefits of annuity plans?
- Income for life – You can be guaranteed of periodic payments as long as you are alive which is the highlight of annuity plans
- Tax reduction – You will get a tax reduction from the IRA or 401(k)
- Limitless contribution – There is no contribution limit for annuity plans.
- Choice of the period – You have an option to choose between receiving payments for a lifetime and for a specific length of time
- Inflation protection
- Predictability – You will get a predictable income after retirement which is a good thing.
What are the disadvantages of annuity plans?
- Annuity plans are one of the expensive financial products
- Annuity plans make you pay penalties for early withdrawal
- There are a lot of complexities involved in annuity plans and you need to work with an insurance expert when you plan to buy one.
- Taxation for withdrawals which are not considered to be the return of the principal
- Annuity plans are rather inflexible
- All annuities are not equal and differ in features and terms.
- Some annuity plans provide lower returns on your investment
What are the different types of annuities?
There are majorly five different categories of annuities, which are listed below:
- Immediate annuity plans – You can receive payments soon after you make the investment
- Fixed annuity plans – This offers guarantees fixed investment hence it is popular among retirees.
- Variable annuity plans – Investors can choose from a basket of sub-accounts under variable annuity plans
- Fixed-indexed annuity plans – This fixed annuity plans will have a variable rate of interest
- Deferred annuities – Investors will get payments after a future date in deferred annuities.
What is the best age to buy annuity plans?
- The older the better works well for annuity plans.
- Insurance experts say that the best age for annuity plan is between 70-75 because it will allow you to have the maximum payout
- To find the best age to invest in an annuity, you should consider when the need for a secure and guaranteed income will arise
Which are the best annuity plans in the country?
If you are planning to buy annuity plans, here are two simple annuity plans in the country. You can use an annuity calculator tool to calculate the insurance premiums and the return of payments. The amount and payment in each plan can also be determined using an annuity calculator.
- Single premium immediate annuity plan – A simple type of annuity plan in which you make a one-time investment and start receiving monthly payments from the very next month.
- Single premium deferred annuity plan – In this type of annuity plan, investors will make a one-time investment and start getting monthly payments after a predetermined time in the future
Which are the best companies offering annuities?
- Minnesota Life
- American National Life Insurance
- North American Co for Life and Health
- Penn Mutual
- Midland National