An annuity is a financial contract written by an insurance company that provides a regular income stream to the holder, typically used as a steady income stream during retirement. The payments from an annuity can be scheduled for a definite period (e.g., 10 years) or for the annuitant’s lifetime.
Types of Annuities
- Immediate Annuities: Start paying income immediately after a lump sum investment.
- Deferred Annuities: Income payments begin at a future date. Prior to this, the money invested accrues interest.
Benefits of Buying Annuities
- Guarantees income for life or a certain period.
- Helps manage longevity risk by ensuring one doesn’t outlive their assets.
How Annuities Work
- Investment Phase: You contribute money towards the annuity contract, either through a single payment or multiple payments over time.
- Accumulation Phase: Your money earns interest, tax-deferred, until you begin receiving benefits.
- Payout Phase: Depending on the type of annuity, you will start receiving periodic payments for life or a specific period defined in the contract.
Regulations and Resources
Annuities are regulated by state insurance departments, and it is crucial to review annuity provisions related to taxes under the IRS website and any other relevant federal laws or guidelines. Interested parties should consult an expert or a legal advisor to understand annuities thoroughly, particularly the details mentioned under relevant acts like the Employee Retirement Income Security Act (ERISA).
Guidance documents, act details, and other helpful resources can usually be static documents maintained closely in line with changes by insurance regulators.local or state government websites or branded support collaterals can also provide vital information.
