Annuity Means Safety: Annuity Investment FAQs

Annuity Means Safety: Annuity Investment FAQs
  • Opening Intro -

    The wise ones say, prevention is better than cure.

    Annuity investments may not give you very high returns, but you have the assurance that you can't lose all your money by default of a firm.

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Nobody hates to be in control. It gives us a certain degree of confidence. Confidence that life is going the way we want it to. It feels great to be in control; control of our lives, our finances, our education, welfare of our loved ones, to name but a few. To have assurance that our money is invested in the best way possible is a joy that everyone needs. Lets talk about safe investments, lets talk about annuities.

1. What is an annuity

Annuity is an investment option where you get to contribute money to an insurance company, whether a lump sum contribution or you contribute periodically. Annuities are of two types: deferred annuities and immediate annuities.

Deferred annuity is a type of annuity where you don’t receive payoff immediately after making an investment but you receive it after some time. Immediate annuity is where you receive payoff immediately after making your contribution.

Annuities can also be fixed or variable. In fixed annuities, you receive a fixed withdrawal. In variable, withdrawal varies with the performance in the market.

2. How safe is an annuity

Insurance companies are supposed to also insure themselves with other financial firms. This means that there is little or no risk of default. Therefore, you are assured of safety of your investment when it comes to default of a firm.

3. Are annuities taxed?

Your contribution is tax-deferred but once you start making withdrawals, your earnings are taxed regularly by the income tax. This saves you a lot of money that would have otherwise gone to taxation if it was another investment option with the same returns.

4. Who does it suit most

Annuities are most suitable for people in employment who are almost retiring. These people need an investment that is safe and assures them that the money they have been saving for their retirement will not get exploited by the greedy lot.

Need to borrow money in the near future? Whether your borrowing needs include a home, auto, college education and other, get smart before you apply. It will help you negotiate best rate and terms.

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Students wishing to pursue higher learning need to invest their money in a safe place. They just cant risk seeing their dreams being shattered by making foolish investment decisions. Young parents need to invest so that by the time their kids are old enough to go to school, they will have the school fees ready.

5. Anything to be aware of?

Safe as annuities are, they can be quite tricky, especially for short-term investors. They are more beneficial to those making long-term investments. With such complications in mind, it is much better to involve your financial adviser before making a decision.

The wise ones say, prevention is better than cure. Annuity investments may not give you very high returns, but you have the assurance that you cant lose all your money by default of a firm. You are also assured of higher returns than investments of the same risk due to the tax benefit.

So lets spread the good news. Share this on your Facebook, Twitter, Tumblr and other social sites. Lets help our brothers and sisters make the wisest investment decisions. For more information log on to CNNMoney website.

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