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The Meaningful Definition of Annuities

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Annuities have become increasingly more popular as of late and there are several reasons as to why consumers are finding it more beneficial to invest in this particular investment strategy, especially when considering retirement years. Retirement is meant to be a time marked by stability and security. Annuities have shown to be able to provide consumers with these qualities.

An annuity gives the consumer a guaranteed income for life after retirement. The consumer can use a lump sum from their pension or from their savings to purchase an annuity, allowing them to secure a stable income and stable financial life after they’ve stopped working. There are several options for annuity purchases and there are several insurers to consider when shopping around for an annuity. The definition of annuities includes the idea that is meant to allow for a stable and secure financial future during retirement. Given that level of importance, it is crucial for consumers to consider all options and all potential avenues when choosing the right annuity.

Annuities have become popular for a few different reasons, the first of which is that the government has made their purchase compulsory. The second reason for their surge in popularity is the idea that annuities allow for a stable income throughout retirement. While they do not pose a chance at gaining a large return on investment like strategies that work on the fluctuation of the markets, such as stocks, they do allow for a guaranteed income. This guarantee is rarely found in investment portfolios. They pose a pretty low risk to financial security and consumers seem to gravitate toward that low risk when it comes to their retirement years.

Annuities have also become popular because they come with a variety of different options. For many the idea of a reliable source of income throughout retirement is too hard to pass up and consumers are using annuities as a solid source of income in their retirement portfolios. Consumers can choose from fixed, variable, and immediate annuities. This means that through research, the investor is likely to find an annuity that will work for their future goals. Through research, investors are also able to choose an investor that proves to have the plans they will work best for them. Because of the open market in the current financial industry, consumers are able to find both the annuity and the investor that will serve to fit their needs best.

Is a Variable Annuity worth the hassle?

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There are two main types of annuity – fixed annuity and Variable Annuity. Within these two types, there are different products, and different bells and whistles that can be added to different annuities to make them work best for you. The fact is that there are several different options when it comes to annuities – so it is extremely important to explore the open market and make a thoroughly researched decision. After all, an annuity, whether it is fixed or variable, cannot be changed or cancelled once purchased.

So let us look at the two main types of annuity. A fixed annuity is where the income you receive remains fixed and level throughout the term of the annuity. A fixed annuity is also known as a level annuity because the income remains level. The term of the annuity depends on the type of annuity it is. A lifelong fixed annuity will pay a fixed regular and guaranteed income for as long as you live.

A fixed term annuity will pay a fixed, regular, and guaranteed income for a fixed period of time. This is a pre-agreed period, and the annuity can continue to pay your partner or beneficiaries for the fixed period even if you die within the term of the annuity.

A variable annuity is one where the annuity income is not fixed and can vary through the term of the annuity. For instance, an investment linked annuity is a variable annuity, where the annuity is linked to an external investment such as in stocks or shares. The income you receive from this annuity depends on the performance of the investment – so it could be much higher than a conventional annuity if the investment performs well over time; but similarly, it could also be lower than a conventional annuity.

There is also the risk that you may end up losing the amount you invested in the annuity in the first place. This is a risk that is inherent in this type of investments. Other types of variable annuity include escalating annuity or inflation linked annuity.

An escalating annuity is where income increases by a fixed percentage each year. Although you receive a higher amount in the later stages of the annuity, the income during the outset is generally lower than a conventional annuity, all other things being equal. The risk with this type of annuity is that you really benefit from the increase only at a later stage, and have to compromise during the early stages of the annuity.

A variable annuity could work for you depending on your individual circumstances and your priorities. On the other hand, if you prefer to have a guaranteed fixed income, rather than worry about inflation indices and external investments, then a conventional level annuity may suit you best. It is important to note that there are risks associated with a variable annuity that do not exist with a simple level annuity. If you are not sure about which annuity may suit you, always consult a professional advisor who can give you impartial and expert advice on the matter.

Create Your Own Bespoke Annuity

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An annuity is a way to turn pension savings into regular usable income for the rest of your life, or for a pre agreed period of time. Usually, an annuity is bought with a lump sum from the pension pot, and the size of the lump sum will determine how much income you could get back from the annuity. But annuity income also depends on a number of other factors including age, gender, location, health, the kind of annuity you choose, and of course current annuity rates.

Your pension provider is obligated to make an annuity offer to you; however, you have the right to explore the open market before making a choice. This is known as the open market option and your pension provider is required to make you aware of this path. Shopping around for an Annuity can help you understand the various types of annuities that are available from a multitude of annuity providers.

For instance, there are fixed annuities that pay a fixed income for the entire term of the annuity, and variable annuities such as escalating or investment linked annuities where the income you receive from the annuity varies over time due to several external factors. While a fixed, stable, guaranteed income may work for some people, others may like to have income that is linked to inflation or income that is linked to an external investment product.

An annuity once purchased cannot be changed or cancelled so it is vital to shop around and find an annuity that is the best match for your individual circumstances and needs. It is also important to be aware that many annuities have additional bells and whistles that can be added to the product. For instance, some annuities have the option of adding features whereby your income will continue to be paid to your partner or beneficiaries for a certain fixed period even after you are gone.

You could protect your income from being eroded by inflation by adding an escalating feature, where the annuity payments increase by a certain percentage each year or by investing in an inflation linked annuity, where the payments depend on the Retail Price Index. Naturally, adding extra bells and whistles such as these will generally impact payments in the initial stage – so that, for example, an escalating annuity will pay less than a conventional level annuity at the start of the annuity.

It is important to understand the details of how the annuity works before investing. The key to getting the perfect annuity is to use different tools and options to make the annuity work for you, and to strike the right balance between the level of income you need immediately, and the level of income you would ideally like to receive in the future.