Most seniors want consistency and safety in their financial assets. A retirement annuity offers these vital features apart from other benefits, causing them to be popular with retirees. Retirement annuities ensure that you get a check each month. Moreover, a portion of the payment you receive is treated as a tax-free return of principal. These monthly annuity payments continue for the duration of the contract provided your company offering the retirement annuity product remains financially intact. Fortunately, no one has ever lost money in a fixed retirement annuity during this author's lifetime.
Some consumers perceive the retirement annuity as an illiquid, irreversible investment that cannot meet the requirements of future changes in life-style. Like any investment, retirement annuities have pros and cons. There are a few retirement annuity contracts that offer possibilities provide flexibility when you are planning your financial situation. For instance, a few retirement annuities have a refund feature that should you pass away before receiving the initial premium, the beneficiaries will continue to receive payments until all the premium is paid back. As an example, say you have invested $100,000 and the retirement annuity pays you $1000 monthly. You die 6 years into the contract and have received $72,000 (12 months x 6 years x $1000). Your beneficiaries will continue to receive $1000 monthly until the entire $1,000 is recovered. This feature has a cost in that is reduces the monthly payment during your lifetime.
Various other retirement annuity product providers have a commutation attribute that enables one to revoke the lifetime annuity payments by opting for a one time payment payment (at a cost). Let's look at an illustration. Using the same scenarios above, you have invested $100,000 into a retirement annuity that pays you $1000 per month. Six years into the contract you marry a movie star, have all the money you will ever need, and want to cancel the retirement annuity. You have only received $72,000 of the one hundred thousand dollars you've invested. The annuity company will provide you the present value of the remaining payments that would recover your investment. The present value of the $28,000 might be $22,000 today and you will receive a check for that amount.
A special retirement annuity provides extra cash with specified anniversary dates. As an example, you might want a larger payout on the 10th or 15th anniversary of making the investment. By picking this option, you will reduce payments in the early contract years. Besides, the distribution may be fully taxed, so you need to check with a tax professional before choosing.
There are occasions one needs money for urgent matters such as paying for caregivers or even repairing a home. Certain retirement annuity companies are able to let you take up to half-a-year's payments at one time. However, this would be in place of checks for the next 6 months (such lump-sum payments might be fully taxed, consequently consult a tax professional when you withdraw the money).
Some retirement annuity policies also provide the option of providing a cash benefit to heirs. This is normally a pre-determined proportion, say 25 % or 50 % of the initial investment. By deciding on this option your monthly annuity payments will be less.
To sum up, retirement annuities items come in a wide variety of choices to meet up with your current needs and help arrange for future requirements as well. Their best feature, providing a life time income is the main reason for their popularity.