With an annuity, you’ll be set up for retirement with a steady, tax-free stream of income. Nothing is better than guaranteed income, especially as you enter retirement.
How exactly does an annuity work? An annuity is actually a type of insurance, though it acts somewhat like an investment. But, it’s more stable than most investments. Why? Once you go into a contract with your annuity provider, they have to pay you the agreed-upon amount. So, it’s a guaranteed income.
The insurance provider takes on the risk of you outliving your savings—i.e., outliving the amount grown by your investment over time, and having to pay you your guaranteed income themselves. When you first purchase your policy, you enter the “accumulation” phase, a period of time where you make your monthly payments without receiving the income. Depending on your policy, this phase can be anywhere from 10-30 years.
Once that time has passed, you enter the annuitization or distribution phase. This is when you start consistently receiving that guaranteed income in the form of monthly payments on behalf of your policy and the insurance provider to you.
There are multiple types of annuities available. Let’s go over them so you can determine which one may be right for you.
You choose payout date.
Your payout starts as soon as possible.
You pay a one-time, lump-sum payment.
Payouts are predictable and guaranteed.
Doesn’t benefit from market growth.
You have a selection of investment options.
Payouts are based on market performance.
An annuity works well for just about anyone looking for retirement income. There are options to find coverage that best fits your needs. It’s not for everyone, but it is a reliable source.
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