Types of Annuities
There are many different types of annuities here are a few of them along with a brief description of each:
Variable Annuity – Variable annuities generate income at a future time, post retirement most of the time. This can be paid out with periodic payments or with a lump sum payment.
Index Annuity – This annuity is bases its payout on how much equity you have invested in the annuity at time of payout.
Equity Indexed Annuity – This annuity is based on interest earned with a stock or another equity index.
Immediate Annuity – This annuity begins to generate an income within twelve months from date of issue.
Fixed Annuity – This kind of annuity payment beginswhen you retire providing you with an guaranteed income.
Tax Sheltered Annuity – This annuity allows you to avoid paying federal and state taxes until withdrawal.
Tax Deferred Annuity – This annuity is guaranteed to earn interest and you don't pay taxes on it until you make a withdrawl.
Immediate Annuity – This annuity payment is a larger amount than any of the other types of annuities.
Annuity rates – these change frequently, so make sure you check out what the rate is before investing.
Use this annuity calculator to make an informed decision on how much you need to save.
The use of this calculator is free, provided you retain the copy write notice embedded in the code.
The calculator is based on the following annuity formula.
P = sum deposited at the end of each year (beginning one year from when the annuity "starts")
r = the interest rate, as a decimal (5%, for example, is r = 0.05) n = number of years the annuity has run N = total amount accumulated at the end of n yearsN = (P/r)( (1 + r)n - 1)So if $5000 is deposited yearly for 20 years at 5%, N = (5000/0.05)( (1 + 0.05)20 -1) = 100,000(2.6533 -1) = $165,330
Top 12 Annuity Myths you need to know about:
1.There are no “never going to offered again” deals. These companies want your money. If one offer is being removed from their “menu”, another one will take its place in no time. And you should never allow yourself to be pressured into a hasty decision.
2.Your retirement funds will last as long as you do - With many retirement plans, current longevity is leaving many who thought that their retirement plans were sufficient having to search for employment to supplement their retirement funds. You can avoid this fate by investing in annuities now.
3.We have the best financial designator - Rather than getting tied up in the debate common among investment groups over which financial designator is the best one to use, it far more important to be certain that the financial advisor you choose provides the products and services best meet your needs and that he respects your tolerance for risk.
4.Financial advisors are selling indexed annuities inappropriately, especially to seniors – While there may be a cap on increases, your investment is guaranteed a minimum interest rate as well. This is a conservative investment of low risk.
5.All annuities are variable annuities – the other annuities available are, indexed, fixed and immediate investments.
6.Inflation will always outperform fixed annuities – The opposite, in fact, is true. With a fixed annuity, you are guaranteed a specific rate over a predetermined time span.
7.Investment investors that are registered are the only ones to work with – Many of the registered investment advisors are more interested in their own income than in what is really the best annuity for you.
8.The worst place to invest your Individual Retirement Account (IRA) money is in an annuity – While most of the time this is the case, the exception is when you cannot risk a loss to your principal.
9.If they are working on commission, your financial adviser is biased – Statistics state that the top ten commission based advisor actually maximized earnings while reducing the risk level for their clients.
10.Surrender Charges and Penalties are what annuities are about – The annuity along with the IRA and 401K takes advantage of federal incentives. The parameters are very similar for annuities, IRAs, and 401Ks and early withdrawals for all of these programs are penalized.
11.Insurance agents are not financial planning certified or qualified – Most insurance agents are perfectly able to get you a quote and sell you an annuity that will best meet your needs.
12.Only deal with the big companies – Just because a company is big does not mean that they have the best rates, performance or service or are the choice for you. It is in your own best interest that the service provider you choose is not restricted with the recommendations or advice that they can give to you.
You can sell annuity payments into a lump sum with several companies that will pay out less than the annuity is worth for one lump sum payment. For some people it is worth the loss of principal to cover an emergency.
This information is not written or intended as tax or legal advice and may not be referred to for purposes of avoiding federal tax penalties.