Insurance companies sell retirement products called annuities. There are different types of these products available. A deferred annuity is a set amount of money that earns tax-deferred interest until the time comes to convert it into retirement income. Immediate annuities are lump sums of money, and the insurance company must pay out a set amount of money based on the sum every month. The monthly payments are guaranteed and do not change. Annuities convert lump sums of money into monthly payments, which can be made up of principal return and interest. When a person converts a deferred annuity into an immediate one, this is considered annuitizing of a contract. A person receiving payments is called an annuitant.
Income Options For Annuities
When annuitizing a contract, the choices people have are a monthly income or a lifetime income. The monthly income is distributed over the span of several years and is a fixed amount. Periods of payments for annuities based on monthly income vary between 10 and 20 years in most cases, but some may exceed 40 years. Lifetime annuities guarantee an income until the annuitant dies without period limits. Payments will not stop before the death of the individual.
Income Modifications For Annuities
Lifetime annuity payouts can be altered with a refund modification, a period certain or a joint-and-survivor annuity. When a person adds a period certain, this means the payments will continue for the rest of the annuitant’s life or for a specific amount of years. Joint-and-survivor annuities distribute monthly payments, which are based on the beneficiary’s life span and the annuitant’s life span. The payments for these annuities continue until both parties have died. Refund annuities guarantee that payment totals will be as much as the original lump sum in the event that the annuitant dies prematurely.
Annuity Taxes And Additional Considerations
Annuities that are purchased with all or some of a person’s after-tax income will be eligible for partial payment exclusion ratios with quotes for different annuity payout options. Insurance companies provide exclusion ratios with their quotes for annuity payments. Those who are considering purchasing annuities as retirement tools should spend time comparing other investment options against the annuity’s after-tax return. It is important to remember that annuitizing a contract is an irreversible step. When a person makes this decision and payments start, there is no way to change the contract. In addition to this, there will no longer be a lump sum available for other uses. To learn more about annuities and other retirement planning options, call ACBI at 203-259-7580 or visit our website.
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