Investments can be in anything. Tulip bulb mania peaked in Holland in 1637, when a single tulip bulb sold for more than 10 times the annual income of a skilled craftsman. Gold jewelry has been an investment mainstay for all of history. Antiques, autographs and corporate stock offerings remain popular today. Simply stuffing money under the mattress is an investment – with no possibility of gain or loss.
Potential Profits or Losses
The more risky is an investment, the more potential it holds to be profitable. It also has more potential for loss. Take a risk tolerance test to establish one’s thinking toward, and one’s capacity for taking a chance in the financial sector. Risk tolerance is averaged over all investments, so that the sum of the investments matches one’s attitude toward accepting the possibility of loss compared to the possibility of profit. Every portfolio needs some conservative items to balance out the aggressive ones. A fixed annuity nicely fulfills this conservative need.
Technically, an annuity is a scientific liquidation of cash. An insurance annuity has just an added vehicle to gather that block of cash that will be annuitized when the plan matures. Should an investor have come up with a lump sum from elsewhere that needs to be invested, an annuity will accept large contributions, too. This allows inheritances lottery wins, or stock liquidations to enter the simplified system of annuities.
Different Annuities Are Not So Different
The same annuity can be treated in multiple ways, by checking a separate box on the application. All variations still accumulate funds on a tax-deferred (no taxation until the funds are withdrawn) basis.
- A Tax-Qualified Annuity has contributions and interest reported on tax forms.
- A Tax-Non-Qualified Annuity is of no interest to tax departments currently.
- An Immediate Annuity makes the first payment back to the insured within 30 days.
- A Deferred Annuity won’t make the first payment back to the insured until more than 30 days.
- A Retirement Annuity is scheduled to begin payments back to the insured at retirement.
A fixed annuity generally pays a varying rate of return, based on bands of total amount contributed. There is a minimum rate of return, between 3% and 4½%, that it will never pay less than. When total contributions exceed any band-level, all values earn at the new rate of return, ¼% or ½% higher than before.
Annuities that do not have a choice for life-time payments are not adequate. Any financial calculator can provide a value for payout over a set number of years. Only an insurance annuity can guarantee a payout over an unknown time, such as a person’s lifetime. The payback choice can be changed whenever desired.
The 6 Choices To Receive Annuity Money
- Interest-Only. The principal is conserved for a beneficiary.
- Monthly payments for one person’s lifetime, with or without minimum numbers of payments guaranteed (Single Life Income).
- Monthly payments for two person’s lifetimes (Joint Life Income).
- Monthly payments in a specified amount, until the values are exhausted (Fixed Amount).
- Monthly payments to payout the value in a chosen number of months (Fixed Years).
- Any Method Agreed Upon between the owner and the company.
A fixed insurance annuity is an important piece of any retirement portfolio. It earns a small, guaranteed return, no matter what the rest of the economy is going through. It will never lose value (what is already earned, has become part of the asset). It can reduce taxation problems either now or at time of withdrawal. It includes no purchase fees, management fees or termination fees. It provides quarterly statements, for confident knowledge of the plan’s status, with no continued study required to keep the plan current. Contributions can be one-time, whenever funds become available or regularly recurring.
An annuity allows the freedom to invest a portion of assets aggressively. It may be a great winner. If not, the annuity will still provide a secure future.
Alan Simpson - Work History: Insurance agent for 30 years, Movie Background Actor for 13 years, Insurance Adjustor for 2 years, Army Helicopter pilot, ...
