Definition of AnnuityAnnuity is a series of payments of the same amount of money over a certain period of time at a certain interest rate. Annuity methods are usually used in financial theory to refer to each stream ending fixed payments over a certain period of time. This use is most often seen in financial discussions, usually in relation to valuation of the flow of payments, taking into account the time value of money, concepts such as interest rates and future value.
However, based on the definitions given by these experts, it can be concluded that annuities are a series of payments or receipts whose numbers are fixed, and must be paid or must be received at the end of each period with the same period of time for a certain number of years, and in which the repayment of loans and money.
Annuities are classified by the frequency of the date of payment. Payments (deposits) can be made weekly, monthly, quarterly, yearly, or at other intervals.
Types of AnnuityAnnuities also have certain types, namely:
1. Fixed / Variable AnnuitiesFixed Annuity, which also has a certain interest rate, similar to a Certificate of Deposit (CD) bank. In fixed annuities, insurance companies provide a basic guarantee and a minimum interest rate. In other words, as long as the insurance company is good financially, the money you invest in the annuity will continue to grow and not experience a decline in value.
Variable annuity, that is, if your money can be invested in the investment instrument, the rate of return will be not fixed, especially in mutual funds. The value of your money in a variable annuity and the amount of money to be paid to you will depend on the performance of the investment after deducting the cost of managing the fund.
2. Deferred Annuity / ImmediateDeferred Annuity is having a period in which premiums and investment returns will be accumulated before regular payments are made. This accumulation period can be very long, like deferred annuities for pension funds that last for decades and until employees reach retirement age.
Immediate annuity ie if you start paying income periodically one period after an annuity is purchased. That period will depend on how often the income will be paid. For example, if income is monthly, the first payment is made one month after the annuity is immediately purchased.
3. Fixed Period Annuities, Permanent Amounts / LifetimeFixed Period Annuity is if you pay income for a certain period of time, for example ten years. The amount of income paid will not depend on the age or survival of the person who bought the annuity (called anuitan).
Lifetime Annuity which will provide income for the remaining life of anuitan. A variation of the lifetime annuity will continue to provide income until two anuitant couples die. The amount paid also depends on the age of anuitan, the premium paid to the annuity, and the accumulated return on investment.
4. Single Premium / Flexible Premium AnnuitySingle Premium Annuity which will be funded by a single payment. The single premium annuity can be deferred or immediate. Most single annuities are funded from retirement savings that are due on DPLK (Financial Institution Pension Fund).
Flexible Premium Annuity is an annuity funded by a series of premium payments. Flexible annuities are also always deferred, which is designed to have a sufficient period of time to accumulate premiums and investment income before money can be paid regularly.
What Annuity Can I Get? What Factors Affecting It?
What Annuity Can I Get?There are many annuity options available for you. It depends on your current situation and what you expect. Let's discuss it further. First, there is single life annuity. You will receive the payment. It can be for life or within some years. Second, there is joint life annuity. The payment will continue to your partner or spouse when you passed away.
For more, there is fixed term annuity. It pays an income for some years, then there is also guaranteed sum that you can invest to buy other annuity. Next, you can also find short term annuity. Just like the name, you can stop paying in a number of years, usually 5 years or when you passed away if it comes first.
On the other hand, there is guaranteed period. You need to pay out in a set term. The payment goes on even if you die within the term. Your partner or spouse needs to continue the payment. If you smoke or have certain medical condition, the enhanced or impaired annuity may pay more than what a standard annuity can.
Furthermore, there is escalating annuity that the amount increases every year. For a flat amount of income every year, you can get level annuity. If you are tied to the stock market, the investment linked annuity can give suitable options. The capital protected annuity and the money goes for your beneficiary.
The Factors that Affect Income from AnnuityIn fact, many factors can affect how much income you get from an annuity. First, it is the sum of money you had in your pension pot. You will know it when you bought the annuity. Second is related to the age, health and lifestyle.
When processing for an annuity, you also have to decide whether you want the income to rise every year or not. In addition, you need to decide whether or not the annuity to pay out to somebody else when you have died.
Knowing More about the TaxIf you want to buy an annuity, it is possible to take up to 25% of pension tax you have as the cash. It will not use your personal allowance. Then, you can buy the annuity with 75%. The way you pay the tax on earnings from annuity is similar like how you do in your salary. It is because you are getting tax relief for the contribution when you pay to the pension.
What Is the Best Annuity for Retirement? Which One is the Best?
What is the best annuity for retirement?Annuity is the series of payment based on fixed deposit in saving account at certain period of the rest of life. For retirement, annuity is paid since the person is retired until his dead. The amount of money is the key factor to calculate how much money will be transferred as the fix income. After retirement, annuity is what older people rely on to support their personal needs.
To know which annuity is the best for retirement, few things are important to understand. People can create their own annuity, buy from financial institution, or participate in government based annuity service. Each has pros and cons to determine the best one for retirement.
The Types of Retirement AnnuityAnnuity consists of two main categories: deferred and immediate annuities. Deferred annuity starts with buying annuity service where users send money into their account. However, money is invested at certain period to gain more profit. Users do not receive immediate income, and the withdrawal is limited. Furthermore, annuity starts after users are retired. Therefore, the money will be the income after retirement or certain age.
On the other side, immediate annuity is different from deferred one. Users create account and put money in it. The next year or month, those savings start to gain earning from investment. Users will receive annuity immediately based on how much saving they have. It is suitable for additional income besides the main job. However, users require to put extra money and follow schedule to reach certain amount. The money is also capable to put back into saving to increase amount of annuity.
Things Related to Annuity for RetirementBoth categories are the best option for retirement annuity. If you choose the first model, the annuity is ready after certain period. Good thing is more money every year without bothering the main income. This is suitable for retirement with careful plan. People should decide when they will retire then start annuity as early as possible. Therefore, deferred annuity is the best for this purpose.
Some people work in more than two jobs. They might have other source of income anywhere. To consolidate all earnings, they choose immediate annuity because the money still produces enough profit immediately while still adding enough to saving account. This is reliable option for people who might still work in old age. Both annuity services are available in several providers, including government retirement plan.