Controversial Investments - Issues and Their Ways Out
Let’s start wuth that annuities are some of the most controversial ones of all the forms of income generating investments. So what does actually annuity mean? Annuity (derived from the Latin word ‘annus’) is basically an insurance product sold by insurance companies through authorised agents. It should be also pointed out that this type of investment facilitates a series of payments in the future, in a defined manner, in exchange for an up-front payment of money.
You probably know that there some people who think that annuities are a waste of time and there are much better tools of investment, for example, property or stock market. But then again both the above mentioned forms of investment are vulnerable to crash and do not score very high in comparison to annuities, with respect to safety.
Let’s talk a bit about types of annuities. So, they are mainly of two types: the first one is Deferred and the second one is called Fixed. As concerning ‘Deferred Annuity’, the payments are made usually on a monthly basis for a number of years and you should also know that this form of annuity makes sure that a younger person acquires a good income in his later years. As concerning the latter form that is ‘Fixed or Immediate Annuity’, the buyer pays a large capital sum usually to an insurance company and payments begin soon thereafter.
It is not a secret that today inflation is one of the biggest hurdles faced by annuities. At the outset the agreed sum to be paid out by the insurance company might look excellent and very heart warming. It is important for you to know that inflation can erode the value of your investment at an alarming rate.
The fact that instead of being a long-term capital gain the earnings on annuities are taxable (just as income is) is another draw back with annuities. In addition there are certain stringent rules and regulations governing the deposit that may not be customer friendly, one of which is that the customer cannot withdraw the money until he turns 59.5 years or else he would be charged a 10% penalty for withdrawing the same prematurely.
So, the natural question is why you should consider Annuities as a mode of investment.
Actually, everybody planning to invest in annuities should be the one who is not already contributing his/her maximum to other forms of retirement schemes. But annuities are an excellent mode of investment for those people in higher tax brackets. Annuities make a lot of sense, in those years of high tax liabilities, because these savings are tax exempt. Tax is only due when income is received for the plan and it simply means that you start drawing your annuity after you have stopped earning a high salary.
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