An annuity is basically a pension for life — outside of the State Pension that you would normally get. You can create an annuity by taking a lump sum of cash and putting it directly into an annuity. These policies are actually handled by insurance companies and other financial service providers, so you will need to make sure that you keep that in mind.
When it comes to an annuity, it’s really all about the rate that you’re going to pay for the annuity that you’re interested in. These rates are based on your age and how much life you are expected to have left. Of course, this is also based on your health. The shorter you have to live in terms of calculated life expectancy, the higher rate you will be paid.
Annuities are a good safety net for when you really want to diversify your retirement, but you want something a little more conservative. Are you going to be able to live completely off the annuity? Not really. You will still want to make sure that you have other investments.
If you’re going to get an annuity for yourself, you will need to make sure that you get a proper annuity quote. It’s easy to look up rate tables online, but these might not be the rates that you get offered. You might get better or slightly worse rates than what’s online, so it never hurts to get an in-depth quote. Keep in mind that if you apply for a quote online, you will most likely need to enter contact information. Companies are often hungry for new customers, so they will have no trouble making the time to really work with you.
What features can you add to an annuity? Plenty of features, actually. You can add in an open market option, which would be the best way to fight inflation. Inflation, as you might remember from other reading, is the decreasing value of money over time. In other words, it means that today’s money will not necessarily be enough to pay for tomorrow’s expenses. So you must make sure that any investment money that you receive will be able to keep up with your expenses even as things get more expensive over time. The open market option accomplishes this by giving you a lower starting income for your annuity, but an escalation feature that increases your payments over time.
Other features that we think are important with annuities are the ability to add a spouse’s income or a guaranteed period of payment if the annuitant (you) passes on. You can have these benefits added, but they can indeed make your income go down if you have too many features. You’ll just have to weigh the lost income over the features that really matter to you.
Remember that pension annuities cannot be changed once you start them. So if you come into a lot of money and you want to scale the annuity out 0– you will not be able to do so. You will have to deal with the annuity as it was originally defined.
We think that annuities are a great idea, provided that they’re not the only piece of your retirement pie. There are plenty of annuity providers out there, so comparison shopping is a must — start today!Annuity