It is essential that everyone understand annuities because they are an example of a retirement income device and are one of the most common methods for insuring a stable retirement income.
What is an annuity?
An annuity is a contract between you and usually an insurance company. You make a lump-sum payment or a series of payments to an insurer, and the insurer agrees to give you regular payments, starting right away or at a later date. Here are the ABCs of annuities:
1. There are 2 types of annuities: immediate and deferred. With the immediate annuity, the insurer begins paying you immediately. With the deferred annuity, you schedule a future date with the insurer to begin payments.
2. There are 2 types of returns available: fixed and variable. The fixed guarantees a specific dollar amount for each payment; whereas the variable can change based on the investment returns of the insurer.
3. There are also different time periods to choose from for the payouts: single life, joint life, specific term, life with certain term. The single life pays you for the remainder of your life only. The joint life pays for whichever is longer - your life or the life of your beneficiaries. Certain term pays you for a finite number of years. Life with certain term pays you for the rest of your life or to your beneficiaries for the remainder of a specific number of years.
4. Annuities are NOT FDIC insured but many states provide insurance up to $100,000. The Wharton School has an 11-page guide entitled "Investing Your Lump Sum at Retirement." You can down load it here. Please note that this paper was co-sponsored by New York Life Insurance Company; however, it is quite informative.
As you can see, annuities are understandable and can be very useful in retirement planning. For more information on estate and retirement planning, watch Dennis Sullivan, Esq., CPA, LLM discuss this topic on the national talk show, "Ask The Experts."
To learn about this topic along with how to protect your home and assets from avoidable taxes, probate, and the increasing costs of nursing homes and medical care, call 800-964-4295 (24/7) or register online for one of our Trust, Estate & Asset Protection workshops.