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Saving for retirement is a lifelong job that isn't often easy. Investments are always recommended, but their returns are difficult to predict without financial advisors. That's why many people look to annuities, which can provide guaranteed income in your golden years. They're offered by an insurance company and work similarly to an insurance plan, with exceptional benefits. Learn more about how these contracts can benefit you in the days and years to come. 

How Does an Annuity Work? 

Annuities combine elements of an insurance plan, Social Security, and a 401(k). An individual who invests in an annuity pays a premium based on their life expectancy, allowing people to sign up at any age. However, the younger a person is when they establish an annuity, the lower their premiums will be, accounting for the longer life expectancy and reduced risk to the insurance agency. 

Annuitants pay the premiums and have no contribution limits, allowing for substantial savings down the line. The contributed funds are taken by the insurance company and invested over a fixed period of time to grow the income for the payout phase. Similar to a 401(k), annuitants can withdraw the money without penalty at 59 1/2. 

What Are the Types of Annuities?

Deferred

Deferred annuities pay years or decades later, with premiums experiencing tax-deferred growth. They have no IRS contribution limits, benefiting people who need to supplement their employer-sponsored or individual retirement plans. Insurance companies limit the acceptable premium amount from a single person. Some premiums are capped at about $500,000, while others have a cap at $3 million. However, most providers have a cap between $1 million and $2 million. 

Annuitants who desire more growth can split the premiums among multiple insurers. 

Fixed

Annuities

A fixed annuity pays out a guaranteed amount. The predictability benefits future budgeting, but with a lower risk, annuitants receive only a modest return. In most cases, the income is slightly higher than the yield from a bank CD. 

Immediate 

Immediate annuities are popular among retirees because of their quick dispersal. Annuitants make a lump sum payment to the insurer. In as little as 30 days or as much as a year, they'll start receiving income from the annuity.

Indexed 

An indexed annuity provides a higher risk but also a higher potential yield. Annuitants are guaranteed a minimum income, but a portion of the amount is based on a market index's performance

Variable 

Variable annuities have the highest potential return, using mutual funds placed in a sub-account to develop earnings. The retirement amount depends on the performance of the investments in that sub-account. 

 

Saving for retirement is a long-term, multi-step project that's best started at a young age. With a combination of investments and annuities, retirement can be as comfortable as you deserve. When you're ready to take those first steps, reach out to Allen Financial Group. For over 25 years, Troy, OH, residents have relied on their financial planners to grow and maintain their wealth and provide peace of mind for the future. For more information on their financial services, visit their website. To schedule an appointment, call them at (937) 524-6260.

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