Questions,Pertaining,What,Life finance, share, loan Questions Pertaining To What Is A Life Annuity?
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As people investigate retirement products, many ask, "What is a life annuity?". A life annuity is an insurance product which pays upon retirement, or at the age of 59 1/2, and continues paying, until the death of the annuitant. Annuities usually earn higher interest rates than certificates of deposit, and money may be withdrawn in a lump sum, or in monthly, quarterly, or annual payments.Annuities are either fixed or variable. Fixed annuities earn a guaranteed, fixed rate of interest, and promise a steady payout. Because they are tax-deferred, customers only pay for interest earned, before money is withdrawn. However, fixed rates may not keep up with inflation, and products may come with hefty management fees. In addition, customers will face big penalties, if they choose to withdraw money early, from the account.Fixed annuities are either immediate or deferred. With immediate annuities, customers receive periodic checks after the first month of investment. The size of the checks depends on the interest rate, the size of the initial investment, the pay period, and the length of the contract. Larger investments, with shorter contractual terms, tend to yield the highest payouts.Deferred annuities delay payments. Payments do not usually begin, until after the end of a contracted accumulation phase. Many deferred annuities do allow for limited early withdrawal, up to a point. The annuities are tax-deferred, and allow customers to start with a lower initial investment, than immediate annuities require.Funds invested in variable annuities are more likely to grow. The payments provided by variable annuities depend on the performance of the investments, which the customer purchases from the insurance company. Like their fixed counterparts, they are tax-deferred, but variable annuities offer a better hedge against inflation. On the other hand, variable products come with greater risk, and fees may be high.Purchasing variable annuities is often discouraged by financial professionals. However, for a person under the age of forty, who trades mutual funds regularly, and who has maxed out 401ks and IRAs, variable annuities could actually be money-makers. After about twenty years in an annuity, tax-deferred benefits, and savings on short-term capital gains taxes, will exceed capital gains from mutual funds.Certain other customers should also consider variable annuities. Customers who may be targets for lawsuits, like doctors, will safeguard their funds by purchasing annuities. Annuities are safer because, in most states, any money invested in life insurance policies, or annuities, is protected from lawsuits. Also customers with underwater life insurance policies may also want to consider transferring their assets to an annuity.What is a life annuity? A life annuity is an investment which pays periodic payments on the amount invested, until the death of the person who makes the investment. Upon the death of the annuitant, heirs will receive at least the initial investment, but may lose any capital gains, and will owe taxes on the amount they inherit. While annuities have no contribution limit, most investors find that they have to own annuities for at least ten years, before they begin to see considerable returns on investment. Article Tags: Life Annuity, Initial Investment, Variable Annuities, Capital Gains
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