What Are Annuities Rates & Why They Are Important?
Everyone plans on receiving a fixed monthly income after his or her retirement years. If you are looking for good investment opportunities, investing in annuities is a good option, particularly for a financially secure retired life. Annuities are considered as the perfect financial product for retirement savings and fixed periodic income post retirement. As compared to other retirement saving plans, they offers greater benefits in terms of flexible premium payment options, higher interest rates, no contribution limit, tax savings and fixed periodic income.
What are Annuities?
An annuity is a financial contract signed between an annuitant (person investing) and a financial institution. The person who decides to buy an annuity is called an annuitant. The financial institution that sells it is generally an insurance company. The concept of this investment is quite similar to insurance, but there is no coverage involved.
In a contract, the annuitant pays an amount of money to the financial institution through periodic payments or in lump sum. Annuity rates are the rates at which the returns are paid to the annuitant. These returns depend on the rate of return offered on a certain annuity.
Types of Annuities:
Fixed Annuity: Here the financial institution invests money in a fixed fund that offers fixed returns after a specified period of time. Any change in economy or market index does not affect the returns.
Variable Annuity: Here the return amount can fluctuate according to the changes in economy. Returns are higher when the market goes up and vice-versa. Sometimes, there may be a minimum amount agreed upon and paid to the annuitant, if the returns are very low.
Immediate Annuity: Immediate annuities are beneficial for people who are willing to pay a large amount of money upfront. The annuity rates are fixed and payments at made every month. The annuitant does not have to wait for years to receive payments.
Deferred Annuity: Deferred annuities are specifically used by the employed class. Here, an annuitant pays a specified amount of money for an agreed period of time. After this period is over, they start receiving monthly payments.
Equity-Indexed Annuity: This is a mix of fixed and variable annuities. The principal amount stays protected whereas the interest can vary according to changes in market index.
Getting the Best Rates:
While investing, it is important to compare the annuity rates offered by various companies. The rates depend upon the type of annuities, government policies as well as market condition. Doing an elaborate research of the various options available is the best way to go about it.
There are many websites that provide charts containing detailed information on annuities. These sites also provide a rate table to compare rates, and a calculator that helps to calculate the returns you will receive on investments. Doing a comparison of the rates offered by various companies.