How An Annuity WorksDifferent Types Of Annuities ExplainedHome
The tax is usually less than you would pay during the accumulation period, because the pay out is usually less than the income you earn in your working years. You can set up your annuity in such a way that you cannot outlive it. There are varying income choices available. See the page on life insurance settlement as the pay out options are the same. If you should die before you receive any payments your beneficiary will receive the payments. There are two types of annuities...deferred and immediate. With the deferred annuity you accumulate the cash over a period of years and receive the income at a later specified date. If you should withdraw cash from the plan before retirement the withdrawals are subject to withdrawal charges and income taxes. With immediate annuities you put a lump sum into the plan and start receiving your income at once. People buy these plans to supplement their retirement income. Retirement plans have certain limitations; and Social Security together with a retirement plan usually does not provide sufficient income to allow the retiree to maintain the standard of living to which they have become accustomed. Because of medical advancements people are living longer today thus more assets are needed to provide retirement incomes. Because taxes are deferred there is more cash accumulating over the years which provide a higher income at retirement. Recent changes in Federal Income Tax law have decreased the Federal Income Tax on capital gains. This change will become effective after 2008. As a result of this the consumer will end up with more cash in their hands at retirement. You can begin a deferred annuity with a lump sum and add periodic payments or you can accumulate all of the cash in a uniformed manner over a period of years. There are two types of deferred plans. There are Fixed Deferred Annuities and there are Variable Deferred Annuities. Fixed Deferred plans provide a guaranteed interest rate for a set period of time. The variable plan offers the investor the opportunity to choose the type of investment in which the money should be put and the specific plan or group of plans where the money will be invested. Variable annuity plans are offered by prospectus only.
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