subject: What are retirement annuities and how the plans work [print this page] What are retirement annuities and how the plans work
Before we stumble upon retirement annuities let me tell you what an annuity exactly is. It is basically a product of insurance. It will pay you out an income after your retirement. You must be thinking how this is going to work. You have to pay the premium for this product for certain years without any return. Suppose you are 40 years of age. You choose an annuity product in which you will pay the premium till your 60 years of age. After that you will stop paying premiums and the insurer will start paying you. But do keep in mind that during those 20 years for which you are paying premiums you will not get any returns. This is the basic idea about annuities or retirement annuities.
The money which you will receive from retirement annuities as a return can be opted out to receive as monthly, semi annually or quarterly. You can also choose to receive it as a whole sum. The amount of your payment will be determined by various factors like the premium amount you are paying, the age on which you started the retirement annuity policy etc. The payout also can be of different types. Like you can opt for fixed payout in which you will receive the guaranteed amount decided at the time of settlement. On the other hand you can go for variable payout in which the receivable amount will vary according to market conditions. You can choose to receive the money till your death or for certain number of years after the plan matures.
You can also differentiate the retirement annuities based on the payout like deferred annuity or immediate annuity. Deferred annuities are the general types in which you will start receiving the return after certain years of premium payment. On the other hand you can go for immediate annuity if your retirement is nearby. The great feature of retirement annuities is that the amount you deposit is tax-free but the return will be taxed at normal income tax rate. Another great advantage is you can separate out a lot of money and thus you can save your taxes too.
To calculate the amount of money you will receive for the amount of money you pay as premiums for a certain number of years, you can take the help of annuity calculators. Almost all the companies that offer retirement annuities offer this facility of annuity calculators for their clients. Based on the amount of money you require to maintain your lifestyle after retirement, you can choose the duration, the premium amount and the kind of policy you buy.
Getting retirement annuities is a great idea for people working in private firms or is self employed who will not have any pensions after retirement. By opting for retirement annuities, you can enjoy your life without cutting down on your daily expenses. Hence keep away the retirement blues by calculating your premium amount with annuity calculators, buying retirement annuities that suit your need and you can live life worry free.
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