Tag Archives: Type of Annuity

The Two Types of Annuities Simplified

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There are several investment strategies for ensuring that retirement is a time that is as free from stress and as financially stable as possible. One of the most popularly used of these strategies is investing in an annuity, which can guarantee a certain level of income for a designated period of time. There are a variety of different Types of Annuities, each with their own benefits and drawbacks. Choosing the right annuity can be a large investment of time and effort.
However, researching and ultimately choosing the best annuity for each individual’s unique financial situation can prove to be incredibly cost effective and lucrative.

Any annuity is a way in which an investor can plan for their retirement years, transforming part of their pension pot into a long term financial solution to be used during their retirement. However, choosing the right annuity can make all the difference when trying to plan for years spent in retirement.

Lifetime Annuities
A lifetime annuity is a way for those planning for retirement to use part of their pension pot to guarantee a certain level of income for the rest of their life. With this type of annuity, the investor is guaranteed a determined level of income for the remainder of their life, however long that may be. However, there is obviously no way to predict the lifetime of the investor. So there is no real way to know how long the payments will last. With this type of annuity, the payments stay constant, which means that they may actually end up losing value, depending upon inflation. There is no real way to increase income or payout with this form of an annuity. However, one positive aspect of this type of annuity is that the investor can always plan to have that designated amount of money, as it is guaranteed for the lifetime of the investor.

Variable Annuities
Variable annuities can sometimes be accompanied by great risk. However, they can also produce great reward. With this type of annuity, there is a much greater opportunity for asset growth, given that there are a range of investment choices available. The value of the investment differs depending on the investment options that are chosen. The investment options typically include mutual funds that invest in bonds, money market instruments, stock, or a combination of the three.

Those who choose this annuity strategy are those who are really looking to grow their asset and investment. However, for those who invest in variable annuities, it is crucial to keep in mind that that asset can be compromised. There is both opportunity for growth as well as opportunity for loss.

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.

What value would an Annuity bring to you?

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We are living for longer today than ever before. At the same time, the cost of living is ever rising. Changing social and economic factors mean that planning your finances during retirement has become more important than ever before. After all, retirement is known as the golden period, when one should be able to enjoy the fruits of life’s labour. It is therefore vital to plan carefully and optimise your financial assets to provide for you when you stop working. Things like annuity value prove to be immensely significant during retirement, as an annuity is one of the most important, and often the only source of income for pensioners.

An annuity provides a regular and steady income in exchange for a lump sum. People usually invest their pension savings into an annuity scheme, which then pays out an income either for as long as you live, or for a pre-agreed period of time. How much income an annuity can offer you, or Annuity Value, depends on the size of your annuity fund, which is the amount invested in the annuity, as well as various other factors.

The most important factors that determines annuity value is the type of annuity you choose to invest in and the current annuity rates. Other factors include age, gender, and location. Depending on your health and lifestyle, you could also be eligible for an enhanced annuity, which has a higher annuity value based on the shorter than average life expectancy of the applicant.

Often an annuity is the only source of income during retirement, and so choosing the right annuity with sufficient annuity value is extremely important. Once you buy an annuity it cannot be changed or cancelled – so it is important to make the correct decision the first time around. An annuity offers a chance to make the most of your life savings, but choosing an annuity that underperforms or does not suit your needs could mean losing your life savings to an ineffective investment.

It is imperative to shop around and use the open market option to find the most suitable annuity with a sufficient annuity value. You can consult an independent financial advisor with expertise in the retirement sector to understand the implications of investing in different types of annuities and choosing the best option. You can also use online tools like annuity calculators etc. to find out the best annuity value you could get in exchange for your annuity fund.