Annuities & Guaranteed Income Benefits
- The basic idea behind a guaranteed annuity contract is that you purchase an investment contract from an insurance company and then when you reach retirement, the insurance company pays you a monthly benefit. The annuity contract can be purchased with regular payments throughout your working life or you can pay for it with a lump sum of money all at once. After you are eligible to receive payments, you can get them for the rest of your life or for a certain number of years.
- Annuity contracts come with a guarantee from the insurance company. The insurance company promises to make payments to you for the life of the contract once you reach retirement age. While this guarantee is attractive, the insurance company is the one standing behind it. If the insurance company goes out of business, you have to rely on state guaranty funds that insurance companies pay into. If the funds do not have enough money, you might not get all of your retirement money back.
- When you want to create an income during your retirement years, you can choose between several different types of annuities. The fixed annuity pays a set amount of return on your investment and a fixed payment when you retire. The variable annuity allows you to choose your own investments, and your payment will depend on the returns they get. The indexed annuity is tied to a financial index like the S&P 500. The performance of the index determine the performance of your annuity and the size of your payments.
- When it is time to receive payments, you can choose several different payment methods. If you choose a lifetime payment, you can receive a payment for your life and the life of your spouse. With these programs, you will receive less than if you chose a specific number of years to receive payments. With a period-certain annuity, you get a fixed payment for somewhere between 10 and 20 years, in most cases. Some annuities make interest-only payments and then allow you to withdraw a lump sum at a certain point.