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This article discusses annuities including the types of annuities available as well as the accumulation and distribution phases. Learn more here...

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Introduction to Annuities

A great way to secure a lucrative retirement income is to invest in annuities. An annuity is a type of investment that accumulates value over the years and is distributed back to the holder in a series of payments, usually after retirement. Annuities are available through life insurance companies and some financial institutions. Annuities may also be withdrawn before retirement for other purposes such as college, purchasing a home, or realizing some other short-term or long-term goal.

The Accumulation Phase

Annuities can provide a steady stream of income as long as you live, and with certain payout options, you may receive much more than you paid in if you live a long life. Taxes are deferred during an annuity´s growth period. This allows the funds to grow more quickly. You will only begin paying taxes on the payments received. If withdrawn early, however, there are taxes and penalties to deal with for the amount withdrawn. No tax penalty is charged if you wait until you are age 59 1/2, but you may be required to pay an early withdrawal penalty to the insurer. During the accumulation phase, your premium will earn interest at the rate established by the company.

Types of Annuities

There are several types of annuities to consider. Single-Premium annuities require the entire investment up front, usually with a minimum investment of $5,000 or $10,000. Flexible-Premium annuities require a series of payments to fund the annuity. Immediate annuities require payment of a single premium, but payout starts immediately after the annuity has been funded. Many retirees buy this type....

by Candice Pardue

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