Will annuities help you build up a retirement income?

Who sells annuities? Insurers market them because they combine investment and insurance features. Two common reasons people purchase them is to save for a long term goal, or to assure income later. So even though people tend to associate them with retirement income, they can also be used for other reasons.

So how does the cash account get funded? An annuity will need to have a cash value in order to generate growth or income.

An immediate annuity is funded by one large sum at the start. Consider a retiree with a lump sum payout or a person who has inherited cash from a family member. This product, as the name implies, begins to make income for the owner right away.

Deferred – These must be kept intact for a period that is specified in the contract, and are meant to accumulate cash value over a period of years. They can be funded with one lump sum, periodic contributions, or some mix of the two. You would probably consider this to fund a retirement that is several years in the future.

Payouts – You can also find a variety of payout options. Some common examples are lifetime, joint survivorship, or 10 years. Their are many combinations of this too. For instance, some may have a lifetime payout with a guaranteed payout of ten years. That means that a beneficiary would collect income if the owner passes away before a decade ends.

Some have flexible payout options, and people use them to save money for an emergency.

One of the biggest advantages annuities give you is the way the IRS treats them. They grown and compound as tax deferred investments. The way that payouts will be taxed depends upon the qualified or non-qualified tax status a particular product has.

Another advantage is the safety of fixed products. Fixed products may pay at a contract rate, or they may be pegged to a market index.

Consider one common market like the S&P 500. In good years, when the index goes up, the cash account will grow at a rate that is pegged to that market index. In down years, when the index is down, the cash account will be guaranteed not to lose money. It may either be set to remain stable, or even to earn a set rate like 2%.

Of course, most people want to know how long their annuity will pay out, and how much money they will get. This will depend upon how much money is in the fund, the rate of return, and the type of annuity. It is important to be able to compare different annuity products on the market, and see how they will help you reach your goals.

For more information, visit us – Explain Annuities. Find defereed or Immediate Annuity Quotes.