There are a plethora of avenues available when it comes to investing, each with its corresponding unique features. Traversing through the pitfalls, advantages, and associated jargon of an investment opportunity can be a daunting task for most people.
But according to the figures released by the Bureau of Economic Analysis(BEA), the cumulative level of investment increased by USD 244.9 billion between 2019 and 2020. Notwithstanding the challenges, an increasing number of Americans are looking for and investing their money in newer and better opportunities, such as on different types of annuities. Annuities pack several advantages over traditional avenues of investment and have steadily become popular among investors.
What are annuities?
Annuities are an excellent source of investment that can bring a steady inflow of cash into your pocket. Among the different types of annuities, there are many that can yield varying levels of returns. A person needs to invest a lump sum amount to buy into an annuity plan. This investment can be made on a single occasion or over several years, as per individual capacity, and can expect receiving returns once the amount has been reached.
The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) regulate annuity offerings or products. Because of its reliability, it is widely preferred by investors looking for a steady income after retirement. But of course, there are many reasons for investing in annuities as well.
One of the greatest reasons why many people refrain from investing is market volatility, which often results in a washout of the principal investment amount. This is where annuities can prove attractive to even the most cautious of investors, as you will always have the guarantee of obtaining your principal investment.
Additionally, if you select a fixed annuity, you are liable to receive a fixed percentage of payment irrespective of how the object of investment is performing.
But let's say you want higher returns by investing in more flexible options. In that case, you also have the opportunity of putting your money on fixed indexed annuities, which have the security of fixed annuities along with the prospect of getting higher returns when the market is up.
Lifetime Earning Potential
Many studies indicate that those who have a fixed income stream after retirement are happier than people who do not have that option. The necessity of having a fixed income after retirement has never been direr, as pensions with a dependable income are becoming scarce.
Many annuities provide the investor with a stream of guaranteed income for life, even after the initial investment amount has been fully returned. Annuitants can also go for joint annuity contracts whereby the investor's spouse can receive payments for their life in case of the annuitant's passing.
Apart from a joint contract that guarantees annuity payments to your spouse after your demise, some options can enable you to name other beneficiaries after your death as well. How the funds will be doled out depends on the contract between you and the insurance company that provides the annuity.
You can name multiple beneficiaries who will each get a percentage of the principal investment amount or continue receiving the same returns over a predetermined period.
A significant advantage of investing in annuities is that it can bypass probate if the beneficiary is named in the contract. Probate is the legal process of dividing a person's fortune as per their will, which exacts time and money.
According to the IRS, Americans who filed for taxable returns paid an average income tax of USD 15,322 in 2018. To fend off paying more taxes, you need to make tax-efficient investments, such as annuities.
Unlike most investments, which require yearly payment of taxes, deferred annuities can save your money from following out. When you invest in deferred annuities, the amount is securely tucked away from getting taxed until you decide to start receiving payments against the investment. When you start getting payments, an income tax will be levied on that specific revenue.
Annuities are a great investment opportunity, especially for post-retirement. But before investing in any annuity products, go through the terms of the contract thoroughly or have a professional look into it for you. You should also ascertain the financial condition of the company.