When an investor is considering an annuity Sarasota financial professionals can help him to decide if it is the right choice for him. Often people think of annuities as investment vehicles, when they are actually insurance contracts. Potential buyers should try and understand all of the components of this type of contract prior to making a final decision about buying in.
Annuities are actually insurance contracts and that is how you should think of them. They provide protection against a lack of income in the future. This type of addition to your portfolio guarantees that you will receive at least some amount of money, either in a lump sum or through periodic payments, during your retirement. You must, however, pay a monthly premium or lump sum to the providers for a particular period beforehand.
Most investments that earn a return are taxed as capital gains when the amount is distributed to the owner. With annuities, however, any returns that are earned as taxed as ordinary income after being paid out to the owner of the contract. This could mean that the retiree must pay more taxes than he would had he invested the money in another type of financial instrument.
There are three main types of annuities that a person can purchase. A fixed annuity makes periodic, equal payments beginning at a date specified in the contract. One that is indexed bases the return upon one of the major Indexes, such as the S&P 500, and guarantees a lump sum or periodic payments in the future. A variable annuity is the riskiest, but can provide the greatest gains. It offers a return based upon fluctuating variable interest rates.
Benefits to buying an annuity include the assurance that the person has at least a limited amount of income during his retirement. This helps to offset the risk of loss that his other investment vehicles may carry. If he fails to live long enough to receive any or all of the agreed upon payments, then one of his family members should receive the death benefit.
There are also disadvantages in choosing to purchase such a contract. The growth opportunities are very limited and may not produce the earnings that an individual wishes to achieve. Those earnings also stand the chance of being taxed at a much higher rate than other investments. Many annuities also have fees associated with their management and can carry a hefty penalty charge for early withdrawals.
You should seek the help of an independent financial planner prior to purchasing this type of insurance contract. The broker typically receives commission for getting people to sign up and will not have your best interest in mind. Fee-based financial planners are usually the best to offer advice on what is best suited to your needs.
If you do choose to purchase an annuity Sarasota financial professionals can provide some assistance. Make sure you first understand the pros and cons of adding one to your retirement portfolio. This, along with a financial planner, can help you to understand how it will affect your entire portfolio and taxes during retirement.
Annuities are actually insurance contracts and that is how you should think of them. They provide protection against a lack of income in the future. This type of addition to your portfolio guarantees that you will receive at least some amount of money, either in a lump sum or through periodic payments, during your retirement. You must, however, pay a monthly premium or lump sum to the providers for a particular period beforehand.
Most investments that earn a return are taxed as capital gains when the amount is distributed to the owner. With annuities, however, any returns that are earned as taxed as ordinary income after being paid out to the owner of the contract. This could mean that the retiree must pay more taxes than he would had he invested the money in another type of financial instrument.
There are three main types of annuities that a person can purchase. A fixed annuity makes periodic, equal payments beginning at a date specified in the contract. One that is indexed bases the return upon one of the major Indexes, such as the S&P 500, and guarantees a lump sum or periodic payments in the future. A variable annuity is the riskiest, but can provide the greatest gains. It offers a return based upon fluctuating variable interest rates.
Benefits to buying an annuity include the assurance that the person has at least a limited amount of income during his retirement. This helps to offset the risk of loss that his other investment vehicles may carry. If he fails to live long enough to receive any or all of the agreed upon payments, then one of his family members should receive the death benefit.
There are also disadvantages in choosing to purchase such a contract. The growth opportunities are very limited and may not produce the earnings that an individual wishes to achieve. Those earnings also stand the chance of being taxed at a much higher rate than other investments. Many annuities also have fees associated with their management and can carry a hefty penalty charge for early withdrawals.
You should seek the help of an independent financial planner prior to purchasing this type of insurance contract. The broker typically receives commission for getting people to sign up and will not have your best interest in mind. Fee-based financial planners are usually the best to offer advice on what is best suited to your needs.
If you do choose to purchase an annuity Sarasota financial professionals can provide some assistance. Make sure you first understand the pros and cons of adding one to your retirement portfolio. This, along with a financial planner, can help you to understand how it will affect your entire portfolio and taxes during retirement.
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