ISettlement

An annuity quite simply put is an investment; they are bought from insurance companies usually from pension funds. It is a one way of turning a lump sum of money into an income that is guaranteed for the rest of your life.

Legislation states that most people between the ages of 50 and 75 must buy an annuity along with there personal pension. The amount of income you receive each year for your lump sum is based on the annuity rate, the amount you in your pension fund, your health, sex and age when purchasing the annuity.

The income will also take into account whether it’s just for you or if there is a partner involved. Also the older you are the higher the income will be for an older person will have fewer years than a younger one to live.

Usually the income is higher for a man than it is for the woman; this is based on the fact that men generally do not live as long as women. You usually have the option of when your income is paid, this can be once a month, every three months, 6 months or yearly.

You also have option of choosing if you want your income paying in arrears or in advance, frequently you will receive higher payment if you to be paid in arrears.

The Different Types of Annuities

There are different types of Annuities available these are fixed vs. variable and deferred vs. immediate. The fixed annuity will earn you a fixed rate of interest over a specific period of time, such as one, three or a five year period.

Once this period of time has been reached then a new interest rate will calculated. The variable annuity will offer a broader range of funding or investment options, some of which may include stocks and bonds.

The income you receive from this type of annuity can go up and down and the return you receive is not guaranteed. Some variable annuities though may also offer you a fixed account option that is similar to a fixed annuity in that it will guarantee both your principal and interest.

This option will give you the chance to divide your money between a low risk fixed option and the higher one of stocks, essentially all under one roof.

The deferred annuity can be started with either a single lump sum or flexible payments, and as the name suggests there is a delay in receiving your money. If your main purpose is saving for retirement, you don’t intend touching your money until you are at least 60 years old or you want to invest a lump sum of money that will earn deferred interest for a number of years then a deferred annuity may suit you.

The Immediate annuity may suit you better if you are looking to invest a single lump sum, you will also receive your money earlier. It might also be better suited if you are retired now or are very near to retirement age, if you want an immediate return on your investment or if you wish to receive a steady income in monthly payments.