What is an Annuity?

There are many types of investment that people can make throughout their lifetime. Some people will chose the safe route and go with an investment that will not earn much money but almost guarantee a return. Others will chose a much riskier route and go to way of high risk investing. You are not guaranteed any money at the end of your investment journey but you will have a chance to make a great deal of it if you decide to go this route. An Annuity is an example of the former and is considered one of the safest investments that you can make. You will not make a huge amount of money off of an annuity but you will guarantee yourself an income in your later ages.

An Annuity is when you make a deal with an insurance company. You promise to pay the insurance company a certain amount of money, some will be either monthly or some will be annually. If you keep your end of the bargain and pay the correct amount of money to the insurance company, then when you hit a certain age they will provide you a monthly income for a set amount of time. Annuities are great for people when they hit retirement age. You must be sure to set it up before you hit that age though. The best time to start an annuity is between the ages of your late twenties to around your early forties. This way you can build up a longer contract with the insurance company and you will be able to have a bigger income when you reach retirement age.

Having a steady income around your retirement age is not the only reason why people will attach themselves to an annuity early on in life. They also provide a great tax shelter for a portion of your income. When you create an annuity, the portion of your income that you put into that annuity is considered to be tax free. You will not have to pay any kind of tax onto that piece of income until you start to take money from your annuity years later.

Hopefully we have given you an ideal on what an annuity is and how it might benefit you. You can make the decision for yourself if it is the right way to go for your retirement needs.

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