Annuities and seniors – Information for Retirees:
Often, annuities are an important part of retirement planning. Annuities can give tax-deferred or tax-free savings, and also allow the retirees to handle a number of things, when they reach the Golden years. There are some important things which you should know about.
How Do Annuities Work?
In simple words it can be described as a stream of steady income. An annuity is a series of payments which are made to you. There are different kinds of annuities available for purchase. They offer different benefits and payout options. Tax-deferred benefits are offered by annuities which allow a person to do savings without paying anything to the government. Death benefits are also there for the beneficiaries, and also a number of options for the calculation of interest.
Locating and Buying Annuities:
There are a number of questions which need to be addressed in case you are not familiar with annuities. The first question is where does one find the annuities? The annuities can be purchased from the insurance companies. There are other locations as well. These include:
- Large banks
- Independent financial agents
- Mutual fund companies
- Financial advisors
How can you purchase annuity? It is a confusing question for some people, so let’s answer it in simple and clear language.
An annuity can be purchased through two different methods. If you like, you may pay immediate lump sum, or you can do the payment as a series of premiums. You should be concerned with two different types of annuities. These are immediate annuities and tax-deferred annuities. The immediate annuities, start paying once they are one year old. On the other hand, the tax deferred annuities, must wait until money grows tax-deferred.
Why should the seniors buy annuities?
It is highly recommended for the seniors to buy annuities. There are many reasons for this, including:
- The pension check is not usually enough to cover the needs and bills.
- The social security check is usually not enough to allow a person to live comfortably or to pay the bills.
- In old age the medical bills tend to mount and the income sources are usually not enough.
The annuities are designed in such a way as to supplement ones income, whether one earns income through pension or the Social Security retirement payments. Annuities can be used to cover different expenses like weekly groceries, medical bills or living expenses. In case you are worried that you will outlive your annuity payments, built-in protection is provided by some annuities, while others give death benefits for ones beneficiaries, to make sure that the money is not lost in system and it goes where one wants it to.
For these reasons, majority of the people who own annuities are seniors. Most of such individuals purchase annuities when they are above 50, upon realizing that a little more financial help will be required in future than what they had previously planned. However, a huge percentage (almost 14%) of the buyers is over 64 years old. So you can buy an annuity at any age and start getting the benefits.
Is An Annuity Right For You?
The above information is enough to prove that an annuity is right for almost everyone. However, that is not the case in reality. There is no financial tool which is fit for everyone (Social Security failure is an example). You should consider a number of factors to determine if the annuity is right for you. These include:
- Your age
- The current and the future health care needs
- Current assets and the liabilities which you have
- The retirement plans which you have
- Current retirement funding options which you have – for example Social security, 401(k), etc.
One can make an unlimited amount of annual contributions in case of an annuity, which is very different from other retirement saving tools. You will also be able to use payments of the premiums on the long-term care insurance and you will never have to pay the income tax for these withdrawals.
Before deciding that the annuity is right for you or not, you should ensure that you have an understanding of the contract which you will be singing. Read all the details of annuity and you should make sure that you exactly know what is being spelled out. Examine closely, the details which relate to charges and fees which you will be required to pay. Finally you should be sure that how will the annuity complement the existing retirement portfolio which you have and also if you will have access to the cash for immediate needs or any emergencies.
However, you should understand that all opportunities are not equally golden. You should know that there are some unethical agents out there. In case the agent is putting some undue pressure or they are offering some limited time offer, walking away might be the best option. If they are not telling you all the charges and fees involved then again you should walk away.
Passing your annuity along:
In case a person dies, the annuities can be passed along to the family so they can get the benefits. One simple has to pay an annual fee on the deferred annuity, and your beneficiaries will continue to get payments after your death. Guaranteed annuities also exist. Cash refund option is provided by these guaranteed annuities, which goes directly to ones beneficiaries after death.