Annuity Planning concerns using an annuity as an investment tool for your long-term goals, taking your tolerance for risk into consideration. Annuities have come a long way from the old style fixed check every month for life annuity that everyone has heard of but few consider. Instead, there are varieties of planning options that can maximize your investment return or provide a fixed income stream depending on your goals.
Considerations should be given to your individual tax situation since a tax-sheltered annuity can make sense for some long-term plans while an
might make sense for others. Know your tax obligations. In most cases, you do not pay taxes until you begin to receive payments. However once your annuity begins to make payments to you the income is taxed. This can be an excellent strategy in planning or poor depending on your needs and tax situation.
can be excellent tools to use when you are confident of your ability to direct your investments; they may pay out more in interest than fixed annuities. However, a Variable Annuity is subject to market risk. If you prefer to have a choice in how your annuity is invested, this type of annuity might be an additional investment tool that deserves attention. It is not however, for the person who finds directing investments too difficult or annoying to manage. It is also can involve some risk in terms of lower returns should your investment choice prove unprofitable.
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A Fixed Rate Annuity
planning is straightforward. However, you should consider how inflation would affect a fixed rate annuity over the long term. The investment return rate is set at the time of the contract and inflation may make the choice of this annuity only acceptable to very conservative investors. This type of annuity can be very useful despite its drawbacks and play its own part of the wise investor’s long term planning.
In the long run annuity planning can secure your finances with tax sheltered investments, a steady predictable income or self directed investments which pay out at a greater rate. However, this works best when the options are understood and a strategy in place to maximize your return or secure your future.
When considering any annuity you should investigate the full fees charged by the company issuing the annuity including any early withdrawal fees should they apply.
Take into account that early withdrawal fees may not only be levied by the company but also that the internal revenue service may also tax any amounts withdrawn at a significantly higher rate than just ordinary income. Deferred payout annuities can be a good annuity planning strategy when you have several years left until retirement age.
It is always wiser to use several investment tools whenever possible to secure your future goals. In other words, do not put all your eggs into one basket. Spread it around and both fixed and variable annuities may well provide you that financial cushion your financial plan requires for your retirement or your future.
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