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Deferred/Immediate Annuities
Home » Retirement » What is an Annuity? » Deferred/Immediate AnnuitiesA deferred annuity allows you to postpone paying taxes on earnings until withdrawal and you may put in as much money as you want. An immediate annuity may be fixed or variable just like deferred annuities. The annuity is immediate because you make a one-time payment to the account and begin drawing upon it soon after payment.
Deferred Annuities: An annuity that delays income payments until the holder chooses to receive them is a deferred annuity. The deferred annuity is an efficient way to accumulate money for retirement. You pay no taxes on a deferred annuity until the time of withdrawal. If you feel that Social Security and your employers pension plan is lacking, then deferred annuities are a great supplement. The younger you begin a deferred annuity, the more money you accrue. The deferred annuity should not be dabbled with until you are over the age of 59½. The IRS can apply a penalty on top of the income tax that you ordinarily pay upon withdrawal. The insurer can also impose a surrender fee. This fee usually decreases over time but as you can see there are penalties to withdrawals under a deferred annuity. Upon withdrawal, you must decide how you wish to receive your money. You may take a lump-sum or take your money in payments. This payment plan is advantageous because your money is guaranteed the rest of your life and your tax requirement is also spread out over time.
Immediate Annuities: This annuity is purchased in a one-time payment and you receive your money payments almost immediately. These annuities may be fixed or variable. The payments are based on the amount you contributed, age and the present interest rate. The difference in immediate annuities compared to a variable immediate annuity is the payments. Payments fluctuate according to the investments that are chosen. However, they are designed to give you income that rises to help the retiree keep up with inflation. The variable immediate annuity fluctuates with the stock market. In the past, investing in the stock market is a good indicator of inflation and a way to keep up with it. But it is no guarantee. You can divide your money between fixed and variable options to ensure a more stable income upon retirement. The immediate annuity can provide income for life. You can also choose how often you want your payment. Taxes are paid as you receive your checks. Since your initial payment was already taxed, you are only taxed on earnings!
An annuity plan can be an important part of your retirement portfolio. Annuities can provide you with payment options that will ensure you received an income from them until you die. People are living longer and that means you must make sure you have enough money to support your present standard of living and support you for the duration of your life. The annuity assures you won’t outlive your other assets. It is important to remember that the ability to tax defer your money is always a good idea. This tax deferment enables your money and investments to grow before you must pay the taxes on it. Insurance companies have tried to make the annuity more advantageous by including death benefits and living benefit options. These benefits include certain fees. Just remember the annuity can be a great income support and help you enjoy your retirement years!
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