Explain Annuities, for Beginners
When asked to explain annuities, many resources will tell you that the topic is quite large and often can be complex. Some may tell investors that annuities are not the right choice for their investment goals, especially if other tax deferred investment accounts are still readily available, such as IRA’s or 401k’s and yet, these annuities can still be a good investment for many others. The goal of an annuity is to systematically accumulate money that will be used during retirement. In many cases, you can explain annuities as a type of retirement income that you cannot outlive.
First, explain annuities form the point of their objectives. What are these things for? The annuity can help to reach several goals when it comes to providing you with financial security during your retirement years. First, the biggest benefit is that you can accumulate these retirement funds on a tax-deferred basis. This means that once you have reached your maximum contributions to your Individual Retirement Accounts (IRA’s) and any type of employer sponsored investments, and you still want to save money for retirement, this type of account will allow you to do this without paying taxes on the funds until you begin to receive payments.
The other benefit to understand when you explain annuities is that the benefits from an annuity cannot be outlived in most instances. Most of your other retirement accounts do not have this feature. When you run out of money, you really run out of money. Yet, with an annuity, the funds will continue to be paid to you throughout the rest of your life. This means that you will have immediate income that is coming in at a periodic rate (usually monthly, quarterly or yearly) that can be used by you in the way you wish to, for the rest of your life.
To explain annuities further, consider what they actually are. This is a long-term savings tool that allows you to put money away without having to pay income taxes until the funds are paid to you during retirement. This allows you to convert your retirement savings into a retirement income. Life insurance is not the same as an annuity and in fact, it is the direct opposite of life insurance. Life insurance protects your family by paying out at the time of your death, whereas the annuity will pay you throughout your life during your income.
Two phases need to be understood to explain annuities. During the accumulation phase, funds are being put into the annuity. The second phase is the income phase when you start to receive periodic payments for the annuity during your retirement.
To fully explain annuities, it is often best to look into the various types of them available, including looking at annuity ratings. This information can help you to decide which type of annuity is the right investment for your particular needs and for your overall best investment. Annuities are, for most people, a good investment option.