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How To Invest and Save Money
Britt Erica Tunick is an award winning financial journalist who has spent the past 17 years writing about virtually every aspect of finance. She has mastered the art of boiling down complicated financial topics for readers to understand. |
An Annuity is just one investment catered to saving for retirement. Do your homework and see which investment is right for you. The Basis of Annuities By Britt Erica Tunick When it comes to investment vehicles catered to saving for retirement there are a wealth of options, one of which is an annuity a long-term investment that is essentially an insurance contract taken out with an individual insurance company that guarantees you regular payments at a set date in the future. Unlike 401k plans and individual retirement accounts (IRAs), where investments are funded on a long-term basis through regular contributions, annuities are typically funded with a lump sum investment, known as a premium. As with most investment opportunities, there are different types of annuities available to investors. Fixed annuities provide a guaranteed payout, whereas the ultimate payout amounts of variable annuities are based on the performance of the investments made within them. Not surprisingly, the payouts of fixed annuities tend to be a little lower than those of their variable rate brethren, but for many people fixed annuities are the more appealing option because they are a bit less risky and allow the policy holder to know the exact amount of the payment they will receive back in the future. Payouts can be taken annually, quarterly or monthly and can be set up to be made over a set number of years, or until the time of the policy holder’s death factors that each contribute to the amount an individual policy will ultimately pay out. With both types of annuities, the date that payouts begin is agreed to at the time the initial investment is made and is usually set to begin at the time the policy holder turns 59 ½ years old. Though money invested in an annuity can be accessed at any time, taking it out prior to the maturity of the policy usually means hefty fees in the area of 10%. As with Roth IRAs and 401k plans, one of the most attractive features of annuities is the fact that the money within them is allowed to grow on a tax-free basis until the time payouts begin, at which point the holder must pay income tax on the payout they receive. Unlike 401k accounts, however, contributions made to an annuity cannot be deducted from an individual’s taxable income. Because of the different annuity options and the multiple factors that can contribute to the ultimate payouts these investments will make, the policies they are based on can be extremely lengthy and full of legal jargon. As with any investment, be sure to read all the fine print related to an annuity prior to investing and, whenever possible, seek out advice of a financial advisor to make sure there are no unpleasant surprises in the future, or that an annuity even makes sense for you. |
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