Keeping on top of your finances throughout your life is often an uphill battle. With the rising cost of living, paired with the uncertain state of the global economy post covid, it is more important than ever before to keep an eye on the longevity of your personal finances.
There are lots of things you can do to look after your finances as you get into your golden years. Some of the more popular methods include investing into your retirement fund throughout your life. Or securing physical assets such as real estate. But one of the lesser known methods is something called an Annuity. But what exactly are Annuities? And how do they work?
The Basics Of Annuities
Annuities aren’t so different from a retirement fund. They are designed to provide you with regular payments over a long period of time. That amount of time could be fixed, or it could be until you or your partner passes away. It is for this reason that they are far more popular amongst older people as they can provide steady payments, alongside retirement payments.
Unlike a retirement fund, annuities are a contract between you and an investment company. This could be an insurance firm or a bank. When you get an annuity you make a lump sum payment, or payments over a certain period of time. This money is then taken and re-invested by the annuity owner. The gains from this investment are then rapid to you in monthly installments.
The Specifics
Now it is possible for someone to withdraw their annuity funds from their account early. But, depending on the amount they wish to withdraw, they may incur fees. This is to discourage people from using annuities like a standard investment system. It is also not advisable for younger people to use annuities unless they have a lot of money, and a guarantee they won’t lose this money over the course of their life.
There are two types of annuities. Immediate and deferred. The main difference between them is when the repayments start. Immediate annuities begin payments after the initial lump sum investment is made. This is ideal for anyone with a significant amount of cash. Deferred payment annuities are when you make your initial investments over a series of monthly payments. Once you have completed these payments then you will start to receive your money from the annuity.
It then goes a step further with fixed or variable annuities. As the name implies, fixed annuities provide you with a fixed amount of money every month. This value does not change depending on how well your investment capital has done. The upside is that you have a secure income every month. The downside is that you might lose out on potentially larger repayments. Variable annuities, on the other hand, provide changing payments based on how well your investment is doing. Meaning you could end up with less money one month, but more the next.
Annuities As A Business
Now investment in an annuity as a client isn’t the only way to make money. There is a reason that banks and insurance firms offer annuities as a service. Because there is a lot of profit to be made from it.
Offering annuities is a great way to secure more investment capital for your own portfolio. Of course, you will have to make regular payments to the annuity owners. But there are a lot of people out there looking to get an annuity. There are also hundreds of services offering exclusive annuity leads for businesses, making it easier than ever before to find people willing to invest with you.
You will have to ensure you are making smart investments to ensure you can make good on the repayments you are contractually obliged to make. To that end you will most likely want to invest in safer things such as banks and larger companies.
Investing Safely
An annuity, like any investment, should only be made with all the facts at your disposal. It is vital you do all the necessary research before you get an annuity. And it is important to never put yourself at financial risk just to secure one. If you can’t afford the annuity payments, it might not be for you.