What is an Annuity?

Several people ask me about their retirement goals and what I can do to help. Some people have asked me this question out of pure curiosity. Medini Financial in Ephrata would like to share its knowledge of what an annuity is and go into a little detail of the different types of annuities out there.

Annuities are products that are sold by licensed insurance agents that pays income out to its annuitant.

Annuities come in several varieties.

A fixed annuity pays out a fixed amount of income to its annuitant and grows at a fixed rate.

A variable annuity on the other hand is similar to an investment in a 401k where you can choose the subaccounts where your funds are invested.

People often choose annuities for two reasons one it offers another vehicle for tax deferred growth, and the second reason is because to ensure a steady stream of income in retirement.

Here is an example of how annuities have helped people in retirement.

Harry is a 65 year old man who is retired he has 800,000 dollars he has saved up for retirement, lets say he needs 50,000 dollars a year to survive. He can elect to leave the funds in an investment vehicle like a CDS, stocks, bonds, money market accounts, or a savings account depending on risk tolerance. Now if Harry's investments make a 0% return on investment the money will last 16 years, longer if the the investments do well and obviously shorter if the investments go south.

An annuity may help him guarantee a stream of income for as long he lives in exchange for either a one time payment, or a series of payments into the annuity. In case of options he can take out the money immediately known as an immediate annuity or he take out the money later what is known as a deferred annuity.

Now in this case is Harry would like to have guaranteed income the annuity can be the perfect vehicle. In this case an annuity is appropriate because income is more important than liquidity. If Harry were to live to be 100 and if he started taking out payments at age 70. He would have had a guaranteed stream of income all those years.

Annuities may or may not come with riders and additional benefits at various costs usually a few basis points. This topic has confused a lot of people with all the options out there.

Often times Fixed annuities are more suitable than CD's but sometimes CDS are more suitable than fixedannuities. The main attraction with an Annuity is often times the insurance companies pay higher rates than a CD.

Payouts on annuities can be for various options,including lifetime, or a for certain period of time i.e 20 years. For more information you can check out this great article

http://money.cnn.com/retirement/guide/annuities_basics.moneymag/index.html

or you can contact Medini Financial at 717-419-6347 or via email medinifinancial@gmail.com Every person's financial situation is different. Let Medini Financial take a look at your individual situation and you can see if what options are best for you and make your own decision.

Medini Financial is committed to share its expertise with the local community. Should the need arise for you or your family Medini Financial looks forward to getting you the best rates and world class service.