Online Calculator | An Annuity is a Great Financial Tool

An Annuity is a Great Financial Tool

While a lot of people choose to invest in stocks, bonds or mutual funds, some prefer to invest in annuities. Investing in an annuity has advantages as well as disadvantages. Some say it is safer than stocks and most of the other investments out there while some people disagree. Let’s first understand the annuity definition. An annuity is an insurance company’s product. It is a contract between you and the insurance company. You basically give the insurance company money and the insurance company will, in turn, pay out income to you according to the contract. Annuity payments are often spread over many years. The money you put into an annuity may accumulate tax deferred which means you will not pay any taxes to the IRS on your income put into the annuity until you withdraw your money.

 

Not all companies offer the same types of annuities. Some people like to invest in fixed annuities, some like variable annuities more and some like to invest in an annuity index. As with all investments, there are some risks associated with investing in different types of annuities. The higher the level of risk you take on, the more your annuity account will grow if the market is not down and your annuity investments are in the right places. But, some people invest in annuities because they would like to invest in anything safer than stocks or mutual funds, hope to invest without paying taxes and like many guarantees that the insurance companies offer.

 

The income you are going to receive from your annuity can be in one lump sum payment, monthly payments, quarterly payments or yearly payments. You can decide how large each payment will be or how long you want to receive payments for. Some people choose to receive payments for life whereas others may opt for receiving large payments for a smaller amount of time. While payments are guaranteed to a certain extent, there are a lot of expenses you will have to pay to the insurance company for the guarantees that they offer. This is the key reason why a large number of people say annuities are expensive investments.

 

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