The following annuity calculator will help you determine which annuity is right for you.
- Starting Principle:
- Growth Rate:
- Number of Years to Payout: () Payout at the beginning of the year ( ) Payout at the end of the year
Annual Payout in $:
August 11, 2009
Annuity Calculator
August 10, 2009
Fixed Annuity
A fixed annuity is a simple and popular solution for retirees looking for a reliable source of income with a unique advantage – income for life.
A fixed annuity is a contract between you and an insurance company where the insurer pays you cash immediately and not at some point in the future as with a variable annuity. Insurance companies assume all risks on your investment and they guarantee payment at your stated interest rate. Additionally, a fixed annuity is not tied to the stock market.
Fixed Annuity: What are your options?
There are two options with a fixed annuity: Immediate or deferred annuity. Each option has its benefits and largely depends on your short and long-term financial goals.
- Immediate Annuity: With an immediate annuity, you make a one-time or lump sum payment and in return, you begin receiving cash annuity payments monthly, quarterly or annually, depending on what you choose.
- Deferred Annuity: With a deferred annuity, you build up money in your account on a tax-deferred basis and begin withdrawing the money at a point in the future. It is commonly used for people to build up their retirement nest, knowing that they will receive a guaranteed stream of income in the future.
Advantages
It is the first choice of the risk-averse investor, who prefers to avoid the fluctuations and risks of the Stock Market. It is because a fixed annuity offers a fixed rate of return on investment, which the investor is sure to receive. Along with that, the investor will be satisfied that there will be no tax payments until a withdrawal is made. Also, it is easy to invest in a fixed annuity, as the minimum required investment is within the bracket of $1,000 to $10,000.
Disadvantages
One of the greatest disadvantages of a fixed annuity is the fact that it pays out on a fixed rate of return, and does not adjust for factors like inflation. Since the payments do not rise to compensate the declining value of money over time, which results in a declining power of purchase, the investor is unable to maximize the return on investment. This problem can get more severe for investors who are planning to receive considerably long term payments from a fixed annuity plan.
It is also discouraging for investors who are on a look out to maximize the return on their investment. The rates are not fixed for a very long period of time, and may change from year to year. Therefore, although the payout of a fixed annuity is on a fixed and guaranteed interest rate, the investor could actually end up with decreased return on his or her investment.
Is it right for you?
If you are not too keen about maximizing the profit on your investment, or if the time value of money problem with its returns don’t bother you, than you will probably be comfortable with a fixed annuity. Moreover, fixed annuity is appropriate for people who want a risk free and stable income, and who want to live comfortably during retirement.
July 30, 2009
Is an Annuity Right for You?
Considering the pros and cons of an annuity, you should think about investing in one after you have fully benefited from other retirement products that offer tax benefits as well, for example, IRA and 401(k) plans. You should consider annuities only if you have a little extra money to invest and save for your retirement, even more so if you belong to a higher tax slab, to benefit from the tax-free growth of your money.
The reason for that simply is that you may face some problems with an annuity. Annuities are costly, and do not allow you to comfortably make withdrawals. A withdrawal is discouraged by a 10% penalty, and a surrender charge, the rate of which may range from 7 to 20%, depending on your product. Moreover, you would also have to pay up to 10% in commission to the agents who sold you the annuity plan. And with all the costs added up, the annual charges of an annuity amount to 3%, which is even higher than that of a mutual fund.
And speaking of mutual funds, evaluate your available investment opportunities before you invest in an annuity. An insurance agent will do his or her best to convince you to buy the annuity by propagating only its benefits, as the annual costs and rules are often very complex and hard to understand. Don’t get easily impressed and extract as much information about the product as possible. Also check mutual funds out, learn about their costs and returns and research their terms and conditions, maybe you would be better off managing your own funds and generating an income stream.
You must also understand the rules and regulations about the withdrawals. Only the earnings on your investment will be taxed, and your contribution to the annuity. The maximum tax rate these days is 35%, and you can be sure these rates will not increase any time soon.
July 25, 2009
Variable Annuity
Variable annuities have quickly become the large part of Americans’ retirement and investment plans. You’ve heard about them, but what are they?
A variable annuity is a contract between you an insurance company where the insurer agrees to make periodic payments to you, which will begin immediately or at a later date that you decide. You can purchase a variable annuity contract by making a one-time payment or a series of purchase payments.
A variable annuity allows you to choose from a range of investment options such as mutual funds that invests in stocks, bonds and/or money market instruments. The value of your investment will depend on the performance of the investment options that you choose.
Benefits of a Variable Annuity
- Periodic Payments – Variable annuities allow you, your spouse or any other person on the contract, to receive money for the rest of his or her life. This is important because it offers protection to the contract holder who outlives his or her assets during retirement.
- Death Benefits – If you happen to pass away before the insurance company has started to make payments to you, your beneficiary is guaranteed to receive a predetermined amount, which is usually at least the same amount as your purchase payments.
- Tax-Deferred* – You will not pay taxes on the income and investment gains from your variable annuity until you withdraw your money.
Phases of a Variable Annuity
Phase 1 – Accumulation Phase
In this phase, you make purchase payments that you allocate to various investment options. For example, you can allocate 30% in stocks, 50% in bonds and 20% in money market instruments. You have complete control over where you invest your money.
Phase 2 – Payout Phase
In the beginning, you may receive your purchase payments plus investment income and any gains as a lump sum payment. Or, if you prefer to receive cash periodically (monthly, quarterly or annually), the option is all yours. The periodic payment option also allows you to choose how long the payments will last.
Annuities: What are they and how to get them
An annuity is an insurance product that pays out cash for you to use in any way. Annuities are commonly used as part of a retirement strategy and are a popular choice for savvy investors looking for a steady source of income.
How does an Annuity work?
1) You make an investment in the annuity.
2) Money is paid out to you at a later date or a series of dates, such as monthly, quarterly, or annually. You can even have the cash paid out to you in one lump sum.
More on Payments
Payments can come to you for the rest of your life or for a predetermined number of years, depending on what you and your financial advisor decide is best for you. The amount you receive depends if you choose a fixed annuity (guaranteed payment) or variable annuity, which depends on your annuity’s investments.
What are the Types of Annuities?
There are two basic types of annuities: deferred annuity and immediate annuity.
With a deferred annuity, your money is invested for a predefined period of time and is typically withdrawn in your retirement.
With an immediate annuity, you can start receiving your payments shortly after you make your initial investment into the annuity. Typically, investors purchase an immediate annuity as they approach retirement.
Tax Benefits*
There are tax benefits to annuities. Any money that you invest grows, tax-deferred. Any amount you contribute to the annuity is not taxed; however, earnings are taxed depending on your tax bracket. Unlike a 401k or an IRA, there is no limit on the amount you can invest into an annuity. Also, the minimum withdrawal requirements for an annuity are less restricting than those of a 401k or an IRA.
Comments Off