In a world where people are more concerned about long-term security and millions of Americans have no retirement savings whatsoever, annuity payment schemes are becoming more popular.
Annuity schemes take many, many forms. In their most basic form, an annuity is simply any financial setup where you put money into a vehicle and then receive it back in monthly payments over many years, often in retirement.
It is a way to guarantee regular income in retirement and it has plenty of positives and drawbacks. If you are wondering what is an annuity payment, read on to find out everything you need to know.
What Is an Annuity Payment: The Basics
An annuity payment can be arranged in several circumstances. The most common is the “insurance style” annuity. This is when you are making payments into a fund now to guarantee income in retirement.
There are fixed annuity schemes where you pay into a fund and get a guaranteed rate of return on those payments in the future (e.g. 5%). Then there are variable annuities, in which your money is invested in a stock fund and your rate of return is based on the performance of the market.
There are also structured settlement schemes. This is when the winnings from a personal lawsuit are paid out in monthly or yearly installments.
How Do Annuities Work?
First, you can pay into an annuity in one of two ways. You can invest a single large sum of cash in a one-off payment. Alternatively, you can pay in a certain agreed amount each month (e.g. 10% of your income) up to a certain year, at which point the switch will occur and the fund will start paying you.
You can choose exactly at what age you would like to start receiving your payments. You can also choose how long you would like the annuity payment period to be, whether it’s 5 years or 30 years.
The Pros of Annuity Payments
There are many pros of annuity payments that will work for certain types of people. For one, most annuities offer a guaranteed return for life. Although the rate of return might be modest, you are usually guaranteed 100% that you will at least get back every penny that you put into it.
This means that, no matter what happens in the market, you aren’t technically risking anything. Also, annuity schemes are not like 401Ks, in that you can put as little or as much money into the pot as you would like.
The Cons of Annuity Payments
There are cons of annuity payments, which is exactly why so many people opt for selling an annuity payment to a company that will give them a large lump sum in exchange for the annuity. If you want to know how to sell an annuity payment, you can click here to learn more.
People may sell their annuities because they are sick of paying fees to an insurance company to handle the annuity. People may simply sell because the rate of returns is too small and they would rather access the lump sum to say, pay off their mortgage or start a business. If an annuity scheme doesn’t work for you, you can always sell up.
Essential Financial Guidance at Your Fingertips
Now that you know what is an annuity payment, you can make a more informed decision about your financial future. True financial freedom comes when you know exactly what options you have out there.
For this, we have got you covered. Head to our Financial section for the latest expert updates on the financial products that could secure you future.