Retirement planning is an important part of a financial plan, especially at a younger age. When you start planning for your future earlier, there is sufficient time to tackle any unexpected challenges and live comfortably in the meantime. There are many reasons you should start retirement planning at the early stages of your life. It can help you to lead a comfortable and dignified retired life.
An annuity is a special product that is designed specially to provide a regular income after you have retired. You can still be financially independent and do not have to change your lifestyle as an annuity provides you a regular flow of income after your retirement.
What Is Annuity And How It Works?
An annuity is an insurance product offered by insurance providers that functions as a retirement tool. The main goal is to ensure that you do not outlive your retirement savings.
The policyholder can make an investment in the annuity. The insurance provider agrees to make a series of payments or a lump sum beginning on a future date. The income you receive from an annuity can be paid out for a specified period or for the rest of your life.
What Exactly Is Retirement Planning?
Retirement planning means preparing for a steady flow of income after retirement. It requires setting aside funds and investing accordingly with that goal in mind. Your strategy for retirement will depend on your financial income, your goal and your age.
Why Is Early Retirement Planning Necessary?
There is no perfect time to start planning for retirement. Your financial profile may look different at different stages of your life. However, it is advisable to start retirement planning in the early stages of your life. It will help you spread the investment over an extended period and reduce the burden on your regular income.
A retirement corpus can help you at all stages of your life, as the fund can be pledged to raise a short-term loan for an emergency. It is essential to understand your risk-taking ability in terms of age and also your income sources.
Plan Your Retirement Using Annuities
Annuities are mostly used as a retirement planning tool because annuities allow you to turn a lump sum of money into a steady income stream for a set number of years or the rest of your life. The use of annuities in retirement planning includes accumulating assets, pensions, social security, and receiving life income.
The advantage of using annuities for retirement planning is that you can put away larger funds and defer paying tax on growth. Just like 401k, the growth on annuities is tax-free until funds are withdrawn.
What Is a 401k Plan?
It is one type of retirement savings plan which provides tax advantages to the employees. A 401k plan is a retirement account in which employees can contribute income. Generally, the account is sponsored by the employer. There are two types of 401k plans, traditional and Roth. Both plans differ primarily in how they are taxed.
5 Things About Annuity We Bet You Didn’t Know
Annuities can play a valuable role in providing strengthening and guaranteed retirement plans. Despite the myth that it is too expensive and complex, annuities offer many reasons to invest in these products.
Here are the five common facts about annuities that you might not know.
Annuities Are Low Cost
Many annuities are available at a low cost. Others that have higher costs offer potentially valuable additional features. When you choose an annuity, you should compare the cost against the value of each additional feature and benefit.
No Contributions Limit
There is a fantastic benefit of an annuity that it does not have yearly contribution limits. This can give you the ability to put away a ton of money and defer paying taxes.
You Will Not Outlive Your Savings
Besides social security and pensions, annuities can guarantee a flow of income that you can not outlive. With an annuity, you enter into a contract with an insurance provider to provide you with a specific amount for the rest of your life.
Earning On Annuities Are Tax-Free
Earning on annuities is tax-free, so as long as you do not make withdrawals on your money, you do not pay taxes on the gains. This is an amazing feature if you expect to be in a lower tax bracket when you get older.
Beneficiary Option
In case of any unfortunate event happens to the policyholder, the beneficiary will receive payments. Most annuities are designed to pass the account value on to the policyholder’s heirs. Income annuities allow you to continue the payments to your beneficiaries if you were to pass away prematurely.
Conclusion
Annuities can offer flexibility in how you save and receive the fund in retirement. There are several types of annuity products designed to address a specific need of life stage.
