ANNUITY SETTLEMENT

Annuities and Structured Settlements

You’re unlikely to reach retirement age without somebody asking you about annuities. They want to know whether you considered buying one, and if they work for an insurance agency, they’re likely to try to sell you on the benefits of a lifetime income that annuities can provide.

So, what exactly are annuities? Annuities are an insurance policies that behave like investments.

Annuities offer a hedge against something bad happening to your money, like a huge loss in a stock market collapse. Instead of personally managing your money and assuming risks inherent in stocks and mutual funds, you buy an annuity that guarantees a steady monthly income for decades or even a lifetime.

Annuities are contracts between investors and insurers designed to meet long-term retirement goals for investors. Money can either be invested in a lump sum or through a series of payments. In exchange for the investment, the insurer agrees to make periodic payments to the investor beginning at a specified date.

Just like a life insurance policy, which guarantees a lump-sum payment to your heirs, an annuity is a contract with an insurance company that pays you, slowly in most cases, while you’re alive, and often provides a payment to a beneficiary when you die. Annuities come with large initial costs. Many purchasers put a substantial part of their retirement savings into an annuity, giving them comfort that no matter what happens, they’ll always have an income. In addition, the amount you invest grows tax deferred until it is withdrawn.

Types of Annuities

Retirement annuities, properly called deferred annuities, come in three varieties, fixed, indexed and variable. All are tax deferred and will pay your beneficiary a specified minimum amount when you die. Periodic payments are made to you for a fixed period or a lifetime, and payments can continue after your death to your spouse.

Annuities come with two payout plans. Immediate annuities begin paying immediately after you purchase them. These products are often sold to retirees who want to convert savings into guaranteed income streams. The other variety is deferred-income. This model allows you to buy an annuity now to receive payouts in the future. If you are in your 50s and don’t envision needed annuity income until you’re 70, this model lets you build value before payouts begin.

You should also remember that unlike savings in government regulated banks, annuities are insurance products that aren’t insured. If you are uncertain about the condition of the company issuing the annuity, you probably ought to rethink making the investment since a corporate failure could eat your retirement savings.