Many investors may have heard of the term annuity and may be wondering what it is. Annuity is a tool for investment in which the investor enters into an agreement with an insurance company by signing a contract in which they pay a certain amount of money, either at once or in intervals, and after which the insurance company pays them a certain amount, either as a lump-sum or in intervals.
There are various types of annuity, and the individual who asked what is annuity may require more information about them. One type of annuity is immediate annuity in which the individual funds an annuity and starts withdrawing the amounts immediately. Income taxes are not applicable for the accumulation phase of this type of annuity, and the income of an individual may be increased due to this.
If the investor who inquired, what is annuity, probes further, they could be informed that such an annuity is usually funded form other types of retirement investment plans such as IRA with the hope of deferring taxes on investment. They are a very good option for individuals who would like to save some of the money that they pay on taxes.
In an immediate annuity, the individual starts receiving payments immediately in a way that is agreed upon between the two parties. There are various choices and the individual could opt to receive the funds after every month, twice a year or even after every year. The payments will depend on the amount that the individual invested in the purchase of an immediate annuity.
The investor who asked what is annuity could be interested to know that in an immediate annuity, there is the option of choosing between a fixed annuity and a variable immediate annuity. In the former, the individual’s investment will grow at a fixed rate. But in the variable annuity, they will receive payments depending on the performance of the sub-accounts that they purchased using their investment.
There are so many costs associated with this type of annuity. The costs vary from one insurance company to the next. The internet is therefore the greatest tool in the hands of the investor, as they can use it to research as well as to shop around for the best insurance company to purchase an immediate annuity from. This effort will be beneficial in the long run because the insurance company that does not charge exorbitantly will mean that the individual’s investment is not lost in numerous fees.
The prospectus usually includes all the expected payments as well as how payments are calculated and an individual who knows this document well will be able to make the correct decision concerning the purchase of an immediate annuity.
An immediate annuity provides additional funds to an individual long after they have retired. It is a good way of deferring the payment of tax on income. Individuals who want to purchase such an annuity should make use of the internet in order to find out companies that offer such an investment plan.