Annuity Purchase

Things to Consider

Although it is important to stay in the moment and savor each and every minute of life, it is also important to be pragmatic at times. Whether we have our business or we are employed with an organization, our income flow would not last forever. Hence, it is vital to invest a part of your daily income in a financial product so that you have something to fall back on in your retirement age.

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A very profitable investment option for retirement purposes these days is an annuity. Broadly speaking, an annuity is a life insurance policy which requires you to invest a certain amount periodically for a certain length of time. The investment that you make is then paid to you at the time of maturity in the form of regular checks or taking a lump sum amount, whatever is your preference.

But purchasing an annuity can be a tedious proposition in itself. Reason being that there are quite a lot of annuity products out there and each has their own pros and cons.

There is fixed annuity, variable annuity, deferred annuity, immediate annuity and indexed annuity to name a few. For your annuity investments to be profitable, it is very important to give the buying of an annuity careful thought.

There are a lot of factors which you need to consider before you go ahead with your annuity purchase.

Time till Retirement- This is the first and the foremost thing you need to consider before buying an annuity. Popular advise has it that if you have ten or more than ten years to go for retirement, you should invest in a fixed annuity as it offers good returns over the long term and is a conservative option too. But for those of you who are nearing retirement, an immediate annuity is a much wiser option.

Lock In period- Another thing to ponder when considering annuity purchase is the lock in period of the annuity. Lock in period is the time period for which you cannot withdraw any money. In case you make a withdrawal, the company levies you with a hefty penalty. Different companies have different policies regarding penalties.

Interest Rates- Now this factor is a given for any investment. And the same holds true for annuity purchase as well. For a fixed annuity or a tax deferred annuity, you normally get a clear picture of the amount you would get on maturity as the interest rate remains fixed. So select the annuity which has the highest interest rate.

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