Annuities are the form of contracts that insurance firms offer. In most cases, the consumer is assured of a payout, usually monthly or the agreed period. In simple words, an annuity is a kind of payment paid periodically in instalments from a sum of money. Therefore, annuities for a consistent source of income. Therefore, the annuity is an assurance that an individual will get extra income even if their assets deplete. The world is uncertain, and this makes annuity plans the most reliable venues. An individual chooses the plan they need based on their personal needs.
An individual can add an annuity plan to their retirement plan as an effective investment solution. This ensures that one cannot outlive their money. Another good thing about annuity plans is that the policyholder gets to enjoy the simple nature of the payment methods. However, the payment depends on the type of annuity one chooses.
Types of Annuity Plans
There are different types of annuity plans for individuals seeking retirement stability. These types are differentiated by two factors;
- How the individual wants their annuity to grow
- When the individual wants to begin getting their payment
1.Immediate Annuity and Deferred Annuity
Both of these annuities are offered based on when the payment starts. When choosing any of the two annuities, a buyer should be clear on when they want to receive their payments. Look at the two types in detail.
With an immediate annuity, the person is guaranteed immediate payout once they invest in the plan. Therefore, they get a lifetime payout, meaning that the income will be steady. The good thing about immediate annuity plans is that the policyholder is sure of the amount they will receive when they contribute a specific amount.
The only drawback with the annuity plan is that the person cannot get the full lump sum of money in case of emergencies. However, if they plan to get consistent income, then an immediate plan is the best option.
Deferred Annuity Plan
Deferred annuity plans provide the accumulated sum of money over some time. It can be monthly income or over a year or years. A person pays a certain sum to the insurer, who then invests the money in the chosen option. The great thing about deferred annuities is that one does not have to pay the taxes until they withdraw their money. It gives more time for the invested money to grow and accumulate.
2.Fixed Annuity and Variable Annuity
Fixed and variable annuities are built on the sort of investment option the individual prefers. Each of the options has merits and demerits.
The insurer makes an offer and promises to pay a specific amount of money in the future once an individual invests in them. The insurer invests in various places like corporate bonds and treasury securities. However, one has to be prepared for the uncertainties.
With variable annuity plans, the buyer chooses the funds that the insurer will invest in. How the funds perform will determine how much payout is available and the development of the account.
Annuities are a great choice for an individual who wants a steady income. With proper consideration of future goals and personal needs, one can gain income confidence with these annuities.