In these days of uncertain Social Security retirement benefits and the time at which you may begin receiving them, your best interests dictate that you establish and maintain your own retirement plan(s). A fixed deferred annuity can help you do this while providing you with tax benefits at the same time.
Annuities in General
Essentially, an annuity is a contract between you and an insurance or investment company. You agree to make one or more premium payments and the company agrees to pay you a lump sum or installment payments at a later date. Most people use annuities as a retirement-planning tool.
Types of Annuities
Annuities are available in the following types:
- Single premium or multiple premiums
- Immediate or deferred payout
- Fixed or variable interest rate
As their names imply, single-premium annuities require you to make only one premium payment while multiple-premium annuities require you to make premium payments over a period of time.
An immediate-payout annuity generally pays you within one year after you make your premium payment. Deferred-payout annuities generally pay you several, if not many, years after you start making premium payments.
Again as their names imply, fixed-rate annuities pay a fixed interest rate during your accumulation period. The company sets that rate at the time you buy the annuity. Variable-rate annuities, on the other hand, pay varying interest rates during your accumulation period based on the types of investments you instruct the company to buy for you. This makes fixed deferred annuities a more conservative investment on your part.
Whatever type of annuity you choose, you will pay no income taxes on the interest until such time as you receive your payment(s).
Annuity Payout Times
Keep in mind that if you choose to receive multiple payments from your fixed deferred annuity, you can receive them either monthly or in whatever regularly-occurring installments you desire.
Annuity Payout Periods
You usually have the following three options with regard to the payout period of your deferred annuity:
- Life: The company makes payments to you as long as you live. Life payments usually give you the highest possible payouts.
- Life with Period Certain: The company agrees to make payments for a specified term of years, usually 10 or 20, whether or not you live that long. If you do, you will continue to receive payments for the remainder of your life. If you don’t, your designated beneficiary will receive the payments for the remainder of the specified term of years.
- Joint and Survivor: The company makes payments for as long as you and your designated beneficiary live. It makes no difference which of you dies first.
All in all, annuities, deferred or otherwise, can be a powerful tool in your retirement planning and help you achieve your long-term financial goals.