An annuity is a contract from an insurance company that individuals generally use to accumulate money for their retirement on a tax-deferred basis. It guarantees a fixed or variable payment to at a predetermined time in the future.
What is the biggest advantage of annuities?
It's odd to consider, but it is possible to outlive your income and savings. An annuity sets you up with guaranteed income options as long as you live. Not only that, it allows you to determine when to pay taxes and also provides a safe way to reduce the taxes you do pay; another great money-saving benefit.
What is a deferred annuity?
A deferred annuity is an annuity you purchase either with a single sum or with periodic payments to help save for retirement. The "deferral" refers to taxes - earnings are not treated as taxable income until they are withdrawn. The policy owner can choose the point at which to convert the principal and interest in the contract to a lump sum payment or a stream of income.
Are there different types of deferred annuities?
The two most common deferred annuities are fixed annuities and variable annuities.
What is a Fixed Deferred Annuity?
A Fixed Deferred Annuity is an annuity where the current and guaranteed interests rates are known, as is when the interest will be credited to the funds in the annuity. Rates are usually guaranteed for a specified time period.
What is a Variable Deferred Annuity?
A Variable Deferred Annuity is an annuity under which a portion of the premium is invested, therefore the value of the annuity will fluctuate in value based on the performance of underlying investments. Variable Deferred Annuities, for this reason, are inherently more risky than Fixed Deferred Annuities.