When you look around, you will agree that having a secure retirement plan is probably one of the most crucial things in life. It could be for yourself or even your parent. Having made numerous investment decisions in life, you will ultimately come to agree that at old age you need to be relaxing and eating the fruits of your labour and not running about looking for rental houses to live in. You could have already made a decision to buy some good stocks so that at your old age you will just be selling a small part of your investment every other time to keep you going. This is good idea but have you ever considered having a fixed annuity?
A fixed annuity is an arrangement where an individual agrees to give an insurance firm a certain amount of money either in lump sum or premiums which will be paid back to the individual either in instalments or as a lump sum. Many people take up the annuity to cater for their retirement while others the plan to safeguard their children’s education or providing for a surviving spouse if one passed away. One should always get some advice from a person in the know like an accountant because these types of annuities are not suitable for everyone.
The Internal Revenue Code (IRC) is the body that sets out the general rules with regard to annuity administration whereas the individual states set out the actual details to monitor the annuities provided. Therefore, you will find that different states have different rules with regard to administration and features of annuities. The Financial Industry Revenue Authority (FINRA) sets out the rules to be adhered to by the insurance companies that provide annuity services. It is a non governmental body that also licenses the insurance companies.
The USA fixed annuity is designed to cater for the needs of an individual especially the retired ones bearing in mind that the same individual is the one contributing the premiums and thus giving them the at most attentive benefits. You will enjoy the compounded interest for it keeps on accumulating till the annuity matures. What is more is that you are not taxed with anything when making the premium payments to the insurance company. Neither is the interest gained in the process taxed because you are not withdrawing. You will only pay tax on the interest earned when actually receiving your payout. One of the benefits of having an annuity is because of the deferred tax principle.
You will in actual sense be saving. Only that your savings will have more weight as these will earn more interest will be reaching you as an income when you retire. Your principal is also safe as the insurance company invests your premiums in government bonds or other very safe and secure ventures.
In conclusion, it is always good to plan ahead. It’s advisable to take up a fixed annuity at least ten years before your retirement age sets in.