How to Get a Monthly Check for Life with Annuities
Clients desiring financial security throughout retirement should consider annuities. Annuities will provide a monthly check for the rest of a person’s life. Annuities are financial instruments offered by insurance companies. Insurance companies help clients develop strategies to receive a lifetime monthly income. Annuities are also tax deferred savings. Clients are not taxed until the money is removed from the account monthly.
Fixed Rate and Adjustable Rate Annuities
When considering an annuity, determine the best type of annuity for your investment strategy. Some annuities possess fixed interest rates and others adjustable interest rates.
Fixed Rate Annuity
A fixed rate annuity possesses an interest rate that is fixed for the duration of the annuity. These annuities may be based upon a CD or other conservative investment security. With this type of annuity, clients will be assured of receiving the same rate throughout the term of the annuity. A lifetime fixed rate annuity will allow the client to receive a monthly income for the remainder of their life. After the client is deceased, any remaining funds may be paid to a beneficiary.
Clients may obtain annuities with varying maturity lengths. Typically, insurance companies will provide a higher interest rate depending upon the length of the annuity. A 10 year annuity, for instance, may yield an interest rate as high as 9 percent. Alternatively, a 7 year annuity may yield an interest rate of 3.85 percent. A one year annuity will yield a lower interest rate at 1.6 percent. With a fixed rated annuity, the client is guaranteed this particular rate throughout the lifetime of the annuity.
Adjustable Rate Annuities
Adjustable rate annuities are actually determined by S&P 500 index funds. Some of these annuities guarantee a minimum interest rate. However, if the market fluctuates above the minimum interest rate, the client has the opportunity to earn more interest over time. Most of the minimum rates fall between 1 percent and 3 percent. Clients who need a more aggressive investment can enjoy higher interest rates in a good market. Clients may opt for a fixed rate temporarily and then, switch to an adjustable rate at a later date. Each client should review the market with their financial advisor to determine the best strategy to maximize their investment.
Deferred annuities allow clients to save tax deferred. However, they must wait until the annuity matures to avoid penalties. During the 1, 3, or 5 year maturation period, the client cannot withdraw the funds without penalty. When the annuity reaches its maturation date, the client may either begin to receive monthly annuity payments or reinvest the money into another annuity or financial product. While the annuity is maturing, the client may have the right to withdraw funds from the annuity depending upon the terms set by the insurance company. Most of the companies will assess a penalty or fee depending upon the amount of the withdrawal. Inquire with your annuity provider to determine their terms and conditions.
Immediate lifetime annuities offer clients the flexibility to begin receiving monthly payments as soon as the client establishes the annuity fund. Clients will then receive payments over a given period or for the remainder of their lifetime.
Penalties
Clients who withdraw funds before they reach the age of 59.5 will accrue a 10 percent penalty. Clients who withdraw funds after 59.5 will only be responsible for taxes on the interest earned.
As mentioned earlier, insurance providers may also issue a penalty for funds withdrawn before the annuity’s maturation date expires.
Authored by: Lisa Cintron is EVP at AdvisorWorld and OnlineAnnuityRates and a professional financial blogger. She has been published in Technorati.com, WiseBread.com, Examiner.com and many more.
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