New to annuities and annuity settlements?
You’re not alone — most Americans have no idea what an annuity is, let alone how beneficial these annuities can be when saving for retirement or trying to keep up with retirement expenses. With an annuity, you are able to set up a source of income that lasts for the rest of your life. Typically, there are two types of annuities: deferred and income.
Unsure what the difference between a deferred annuity and an income annuity really is? In their most basic definitions, deferred annuities are for the retirement savings process, while income annuities are intended to help you pay your various expenses once you’ve reached retirement. To help you understand how annuities work a little better, here’s a quick guide to the two major types of annuities:
A deferred annuity allows you to build up a sum of money to be accessed at a later point in the future, often with tax deferments as well. These annuities are typically either fixed or variable, and can allow you to convert your savings into a stream of payments that act as your income during your retirement years. If you invest in a deferred annuity, be aware that you’ll want to invest for at least 15 to 20 years in order to achieve a favorable rate of return.
Income annuities, also called immediate annuities, are intended to help you meet your spending needs during retirement and lower the risk that you will outlive the amount of money you have. In exchange for an upfront payment, an insurance company will give you a stream of income spread out over a number of years. With an income annuity, you start receiving these payments after about 30 days or so.
Can I sell my annuity?
If you’ve invested in an annuity and realize you need that money right away because your financial circumstances have changed, it may be possible to sell your annuity in exchange for a lump sum. Selling fixed annuities and annuity settlements gives a third party company the rights to your future annuity payments. In exchange, the company will give you the lump sum of your annuity. If you think this is the right option for you, it might be worthwhile to talk with a financial adviser.
Have any other questions for us about deferred annuities, income annuities or selling your annuity settlement? Feel free to ask us by leaving a comment below.