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Annuities - How They Work
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Posted On :
Oct-12-2010
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Article Word Count :
617
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This article explains the specific details about annuities. When you are finished reading, you will have a better understanding about the types of annuities available, and know if you would like to begin investing in your first annuity.
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Once upon a time, employees received generous pensions paid monthly during their retirements. A fortunate few still have pension funds set up for their future. For the rest of the population, the fairytale was left behind as individuals began to take responsibility for their own investment accounts. Many companies still offer 401(k) accounts to their employees. Unfortunately, you still have to ask yourself three important questions. What happens if I outlive my investments? What happens if my accounts lose money? What happens if rising inflation takes a chunk out of the dollar value of my investment accounts?
You Must Take an Active Role in Managing Your Investment Accounts
When you retire, your accounts must last as much as 20 to 30 years after you stop working. You have two options to make your money outlast you.
1. Make periodic withdrawals in small enough amounts to assure it will last until the end of your life.
2. Split your money between an immediate annuity to guarantee a lifetime income, and accounts that you manage for future needs.
By using a combination of investments, you can more effectively manage your funds until you feel it is appropriate to convert all funds to immediate income annuities.
When Should I Purchase an Immediate Annuity?
If your current expenses exceed your investment and Social Security incomes, establishing an immediate annuity now can guarantee a steady income for the rest of your life. However, if you possess enough money to pay expenses, an annuity purchase can wait until a later date.
People who expect to live long lives may benefit from purchasing an immediate annuity. Longevity runs in families. If your parents were relatively healthy into their 80s or 90s, you should plan your retirement needs based on a long life. However, if you have a chronic medical condition, your life expectancy may not be as long. You might want to spend the money rather than purchasing an annuity.
Annuities Provide the Security of Lifetime Income
No matter how long you live, an annuity is guaranteed to provide you with an income. Your annuity can continue paying heirs for several years after your death, if that is your desire. Some investment advisors counsel their clients to avoid annuities and channel their income into other retirement methods. Before you choose a seemingly superior option, consider the risks you will undertake by shunning annuities.
At What Age Should I Purchase an Annuity?
Some professionals advise buying annuities between 70 to 80 years of age. They theorize that you will have few remaining years to worry about income. Whatever you decide, make sure your financial advisor calculates your monthly income if you wait that long. It would be unwise to wait until you do not have enough money to provide a stable income.
How do I Choose the Right Annuity Provider?
You need to consider the interest rate a company offers and their financial stability. Libraries have copies of publications like Standard & Poors, which rate the financial stability of companies. Once you verify the company’s solvency and interest rates, go ahead and finalize your investment.
How Much Money Should I Invest in My Annuity?
Estimate annual retirement expenses. Your costs will not be as high as when you worked. You can count on work expenses going away; however, some expenses inevitably rise. Take the total of your Social Security and pension incomes and subtract expenses. Your annuity should be sufficient to cover any remaining expenses.
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Article Source :
http://www.articleseen.com/Article_Annuities - How They Work_37235.aspx
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Author Resource :
Simon Cronje is a business consultant who has good information on immediate annuity and annuities between. For more information visit http://www.totalreturnannuities.com/.
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Keywords :
immediate annuity, annuities,
Category :
Finance
:
Finance
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