Almost all investors share the same aim of long-term accumulation of wealth. However, while some investors do not experience difficulty in watching their investments fluctuate depending on the market’s performance, those who have small appetite for risks or people who are nearing their retirement in general can’t endure short-term market volatility within their investment portfolios. If you are the latter type of investor, annuities can be a beneficial investment tool for you. Understand this investing option and learn how to sell your annuity through this introduction to investment article.
An annuity is an agreement between you as the annuitant and an insurance firm that pledges to recompense you with a specific amount of money, on an intermittent basis, for a particular period of time. The annuity grants a kind of retirement income. Thus, when you contribute funds to the annuity account, you are guaranteed with an income stream for your retirement years.
When you start to buy annuities, you will realize that they come with tax sheltering feature; therefore, your contributions minimize your taxable income for the current year. You are also awarded with tax-free earnings on investments until you start to generate income from them. This particular facet is very appealing to novice and young investors who can place funds to a deferred annuity for several years and benefit from tax-free compounding of their assets.
For the reason that they are long-term, retirement planning option, most annuities are considered as the best investment. However, you should understand that there are provisions that reprimand investors if they prematurely distribute their funds. This is implemented to discourage withdrawing annuity funds until the minimum age required. The good news is that there are also provisions that permit approximately 10 to 15 percent of the account balance to be distributed for emergencies without penalty.
How They Work
Understanding how to sell your annuity involves familiarizing yourself first with the two chief approaches that annuities are being constructed and utilized; immediate and deferred annuities.
An immediate annuity allows you to put in a lump sum to the account and promptly start obtaining regular payments, which can be a precise, fixed amount or variable sum depending on your preferred annuity package and normally last throughout your lifetime. Often, you would select this kind of annuity if you collate a one-time payment of hefty amount of money, like receiving your inheritance or lottery winnings. In simpler terms, immediate annuities transform your cash pool into a lifelong income stream, giving you guaranteed allowance monthly for your old age.
On the other hand, deferred annuities are designed to meet several investor requirements. You can contribute and make money over your working life to create a wealthy nest egg for your retirement. The regular contributions you provide to your annuity account mount up as tax sheltered money until you distribute your income from the account. Making regular contributions and the tax-sheltered account growth is known as the accumulation phase.
At times, when you are setting up a deferred annuity, you may transfer your account money from another investment, like a pension plan. This option allows you to begin the accumulation stage with a huge amount of money, followed by lower periodic contributions.
Annuity Account Value
The chief objective of any annuity is to furnish you with a firm, long-term income supplement. But once you decide to sell your annuity, the primary aspects that are taken into consideration in the estimation of the annuity’s value is the present dollar value of your account, the amount of time you’ve contributed to the account, and the projected future inflation-adjusted rate of return. You should also keep in mind that the spousal provisions also influence the annuity contract.
An investment advice to remember about annuities is that it is a tax-sheltered account that can bring long term returns. Just make sure that you place annuities as a component of your overall investing approach, whether you’ll sell or keep it in preparation for your retirement years.