Annuities for Future Security
Annuities are actually kind of a mystery to a lot of people, but only because they don’t understand how they work. An annuity is an income stream or single lump sum payment that is created from premium payments that you have made to the insurance company. The money you pay as premiums earns interest and the principal and interest is paid back out in multiple payments or a single payment. Annuities are usually purchased to create retirement income in the future.
It’s Own Definition
An annuity is basically its own creature which doesn’t fit any other category of insurance. It can’t be defined as anything except as an annuity that’s purchased from an insurance company. It’s the insurance company which uses a lot of different factors to determine how much your payments will be based on your premium payments, the expected interest to be earned, and the charges against the account for fees.
Asking the Right Questions
When you purchase an annuity, there are certain questions you need to ask yourself. First, you want to determine how much income you need at retirement. That amount will influence your annuity premiums you choose to pay. You will also need to understand the various fees that are charged against the annuity. There can be a variety of transaction or contract fees or other miscellaneous fees that can affect the amount of your annuity payments.
Another important question you should ask is what interest rate will be paid and how will it be adjusted over time. You should also find out if there is a minimum interest rate which can be important in volatile markets. In addition, you want to find out whether you are allowed to make an annuity withdrawal early in the event of emergency.
Choosing the Kind of Annuity
Of course, we live in a world that believes in having choices. There are two kinds of annuities you can purchase in terms of how the interest is charged. You can buy a fixed annuity which is exactly how it sounds. You pay a predetermined premium, earn interest according to the contract terms, and the payment is fixed when it starts.
With a variable annuity, the insurance company works with you to invest your premiums with the intent of earning more than would be earned with a fixed annuity. Naturally, there is more risk with this kind of annuity, because if you choose to invest in stocks or bond markets, there’s no guarantee of earnings. Another feature of the variable annuities is the fact the payments can be either fixed or variable.
Naturally, there are many other options you can choose from when purchasing annuities. For example, you can look at death benefits and withdrawal charges. There are also many options related to when the annuity payments will start, how often they will be paid, and whether they will continue to be paid after your death.
Annuities can be valuable tools for retirement planning. The best way to insure you can retire comfortably is to begin planning as soon as possible. You should determine your retirement objectives and then use financial tools such as annuities to reach those goals. The important thing is to compare various kinds of policies and make a careful choice based upon your future needs.
Hodges & Company can find the best annuity to meet your needs, whether indexed, fixed, or immediate.
Call us today, 713.993.9710 or 1.866.993.9710.