What Are Retirement Annuities?
People wondering how they will live after retirement may want to know, "What are retirement annuities?" Retirement annuities provide a stream of income payments for a period of time chosen by the investor. They are contracts between investors and insurance companies for guaranteed interest and income payments. Investors can make one lump sum contribution or can make payments over a long period of time. A retirement annuity is similar to an IRA, however, the purchase of a retirement annuity is subject to a number of conditions. It must be issued in the owner's name and only the annuity owner or beneficiaries can receive benefits from the annuity. Annual contributions are capped and distributions must start before April 1 of the year the owner reaches 75. Retirement annuities have several benefits:
- They are a low-risk way to save for retirement. The interest rate earned is a guaranteed rate, and therefore the value will increase. Contributions are also accepted at any time.
- They allow an investor to reach savings goals faster. Some companies that offer retirement annuities will match a percentage of the money an owner contributes during a set amount of time.
- Retirement annuities offer tax advantages. The interest earned is not taxed until the owner withdraws it. Interest is earned on the initial money contributed and interest is earned on the interest.
There are several different types of tax deferred annuities, including fixed annuities, variable annuities and equity index annuities. Each type has its own pros and cons and, of course, costs vary. Please make sure to read all information provided by the issuing corporation to make sure all fees and obligations are understood before signing up.