What Annuity Companies can Sell

When you are looking at annuity companies, there are two types of financial instruments that they can provide to you: an immediate annuity, and a deferred one. As the names imply, with the former, you put money into the annuity and immediately start drawing some out. In the case of the deferred, you put some money in, it builds up over a period of time, and then you start to draw it out.

Next, the annuity companies can advise you as to whether you should go with a fixed or variable annuity. Once again, the names give you a significant hint as to what they mean. With a fixed annuity, the amount of money you get each month is a set figure. In the case of a variable annuity, your return will vary depending on how the investments your money has been put in do over the course of the year.

Then there are the various advantages to an annuity. When it comes to taxes, they are deferred until you actually withdraw money from the account, and then you are only taxed on that money. It doesn’t matter if you initially deposited $100,000 into the annuity; you will only be taxed – at your regular income tax rate – on the money you get from the annuity each calendar year. This is something any of the annuity companies can advise you about. Another advantage is also part of the tax benefit. Not only do you not pay taxes on the money you deposit, but you don’t pay it on the money the annuity earns over the course of its life.

Then there’s the flexibility to deposits you make to the annuity. Unlike a retirement account (like a 401(k)), you do not have to make any minimum deposit to the annuity each year. If you want to make one contribution when you set up the account, any of the annuity companies out there can set that up for you. Then, on the “back end” – the withdrawal phase of the annuity, annuity companies can set things up however you want. Would you prefer to get one lump sum amount of money, or monthly payments? Do you want the payments to be for a set number of years, or from the time you retire until you pass away? They can arrange the annuity to suit whatever you want.

Now, there are disadvantages to having an annuity; so speak with annuity companies to make sure you understand these, and deal with them. First off, you have to pay a commission when you buy one, and it can be as high as ten percent. There are also annual fees, and they can be high too, as much as two to three percent. If you elect to cash the annuity out at some point, there can be a substantial “surrender charge”. Check with annuity companies when you set up the account to find out what sort of charge you may face. And finally, most annuities are designed for use in retirement. As such, if you take money about before you reach a certain age; there can be a substantial penalty. All of these are factors to consider; so speak to annuity companies and get as much information as possible, before making a decision.