There are many common annuity payout options to know. Annuities are often a useful tool for wealth management and financial planning. They can accept payments, allow potential tax-deferred growth, and distribute their contract value back to the owner. As an investor, familiarize yourself with several different types of annuities and annuities investment strategies to understand how they work and determine which is best for your specific needs. Read on to discover the most common annuity payout options to know.
Systematic Withdrawal Schedule
Systematic withdrawal schedule, often called fixed amount, annuities are one type that provides control over your payments. In fact, you’re able to determine the payment amount you’d like to receive every month. These payments will continue until you run out of capital, or stop them manually. However, your insurance provider can’t guarantee that you won’t outlive the income payments. The amounts you’re able to receive and number of months your receive them heavily depends on the monetary value of your account. Surely, systematic withdrawal schedule annuities grant you increased control over your funds.
Guaranteed Term Life
Guaranteed term life annuities are an additional type that provides a guaranteed income stream for long periods of time. This type of annuity will pay out regularly for the rest of your life. However, investment bankers and other financial professionals often hesitate due to the small risk of dying in the near future. Fortunately, guaranteed term life annuities have options for guaranteed periods, during which your annuity will pay any designated beneficiaries or your estate in the event of your death before the period’s expiration. Typically, these periods last five or ten years. Absolutely, guaranteed term life annuities provide income streams for the rest of your life, and potentially even beyond.
Joint and survivor annuities provide payouts to various family members. They guarantee payments to be made for the remainder of your life and someone else’s, typically your spouse. However, this decision reduces the payment amounts you would receive from straight-life or life with period certain annuities. Additionally, period certain can be included on joint and survivor annuities. By designating a beneficiary, they’ll receive death benefits in the event both annuitants die before the end of the period. Certainly, joint and survivor annuities ensure the financial well-being of your entire family.
Fixed Period/Period Certain
Fixed period, also known as period certain, annuities are another common type that allows you to designate the length of the payment period. Since you’re not being paid for the rest of your life, the payments are higher. However, you run the risk of the payouts exhausting before you die. For instance, if you select a 15-year period at age 50, the payouts will end when you’re 65. This way, if you live past 65, you’ll have lost this significant source of income. Definitely, fixed period annuities allow your control over payment periods.
Lump-sum payments are an annuity type that provides a one-time capital injection. Instead of spreading payments out over a long period, you receive all the money at once. While this often appeals to investors, it comes with significant tax consequences. Since you’ve received the entire amount at once, you need to pay income taxes on the entire sum during tax season. Of course, lump-sum payments provide significant one-time payments, but require tax payments and planning.
There is a myriad of common annuity payout options types to know. One type, systematic withdrawal schedule, grants you increased control over the amounts of your payments. Guaranteed term life annuities provide income for the rest of your life, and potentially beyond. Joint and survivor annuities allow your family members to receive payments in the event of your death, securing their financial well-being. Fixed period annuities enable control over the length of the payment period. Finally, lump-sum payments provide significant cash payouts, but incur significant tax consequences as well. Of course, investors can look into other trading accounts as well to increase returns. When searching for common annuity types to know, consider the types described above.