Relationship Between Annuity in Arrears and Continuous Annuity
Annuities are a favorite with sophisticated professionals who have made good money and plan on keeping it. In this article we show you why this could be a great investment tool for you, and how to get started with annuity investments.
With an annuity, you put down a big payment in exchange for a guaranteed stream of payments over a certain time period. Typically, annuities will pay you the set amount for as long as you live.
Annuities offer the possibility of guaranteed investment return with minimal downside risks. There are strong institutional mechanisms that make annuities much safer than investing in the stock market or corporate bonds. In addition, the use of annuities will typically yield a higher return overall than putting your money in bank savings accounts.
How to Select the Best Annuities
Annuities are available from banks and financial institutions around the world. When trying to select the best annuity investments, you need to evaluate a couple of key indicators.
First, you need to establish the reputation of the financial institution attempting to sell you the annuity. You need to determine if they have a stellar track record or are just another fly by night operation that's out to make a quick buck.
Secondly, look at the fees that the annuity will charge. Some annuities are notorious for piling on hidden fees that cost you money and reduce your investment.
Third, look at the overall economy and, if possible, the balance sheet of the bank issuing the annuity. How confident are you that, five years from now, they will still be able to service their financial liabilities? Is the overall economy doing well enough that you think tying up capital for the long term is still a safe proposition? During crises like the 2008 financial crisis, many long-term investors lost their savings. If you invest in an institution at the wrong time and it goes down, your investment will go down with it and you could be hung out to dry.
An annuity can pay you income for a set number of years or, alternatively, can give you a lifetime income. This is an attractive option for many people reaching retirement age since it gives you a reliable income source for when you are no longer working.
Annuities used in this second way are comparable to retirement savings accounts. Both types of retirement income sources come with tax breaks and benefits. For example, the money that you invest in an annuity is not subject to taxation directly. Only the regular payments you receive from the annuity will be taxed. An important difference with 401(k) or IRA savings accounts is that you can eliminate some of the risk that comes from the stock markets. The underwriter of your annuity assumes some of the market risk. However, you are now exposed to default risk in case the seller of your annuity goes under.
How to Use an Annuity Calculator
There are annuity calculators that can show you how much an annuity will cost, what it pays you back, and how much you gain or lose. For example, you can input the amount of money you would like to receive each month into the calculator.
The annuity calculator will ask for additional details that will impact the cost of the annuity. For example, your age could be a factor, as will your state of residence. In addition, annuity calculators will take into account your state of health, your pension status, and other pertinent details.
The annuity calculator will then plug all the relevant data into a proprietary formula that then outputs the total cost you would need to pay in order to receive your desired annuity.
How Much Monthly Income Will Your Annuity Pay You?
An annuity will give out a monthly income for the term of the annuity. Many annuities stipulate a time period before you start receiving the monthly income. You may, however, be able to structure your annuity in such a way that it can give you payments right away.
In addition, the annuity will define a minimum payout. This is a total amount that the annuity guarantees to pay you, if any. Annuities with a defined minimum payout reduce the risk that you will lose your investment. This is preferable to annuities with no defined minimum payout, or that have a defined minimum payout of zero. The later type of annuity can result in no benefit to you if, for example, you die before the payments begin. An annuity with a defined minimum payout would pass on the benefits to your dependents, if any, and pay out the defined minimum to them over the specified number of years.
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Source: https://www.life123.com/article/getting-started-with-annuity-investments?utm_content=params%3Ao%3D740009%26ad%3DdirN%26qo%3DserpIndex&ueid=06ebfcef-fbc7-4490-8b68-2810013a65a6
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