Safe Money Places
  • Retirement Income
    • Fixed Annuity >
      • Annuity Overview
      • Fixed Rate Annuity
      • Fixed Index Annuities
      • Annuity Benefits
      • Fixed vs. Variable Annuities
    • Social Security >
      • Quick Overview
      • How Does It Work?
      • What Are My Benefits?
      • Deceased Spouse
      • Maximize Your Benefits
      • Estimate Your Benefits
    • Savings Bonds >
      • Quick Overview
      • How do they work?
      • What do they yield?
      • Tax Advantages
      • Older / Baby Bonds
    • Banks and Credit Unions >
      • Quick Overview
      • Certificates of Deposit
      • Money Market Accounts
      • Savings Accounts
  • Financial Protection
    • Life Insurance >
      • Overview
      • Different Types
      • Basic Considerations
      • Typical Questions
      • Common Uses
    • Critical Illness Insurance
    • How Safe Are The Companies? >
      • The FDIC Explained >
        • Quick Overview
        • What does the FDIC Cover?
        • How Does The FDIC Work?
        • Who Is The CDARS?
      • National Credit Union Administration (NCUA)
      • Financial Strength
      • What if they fail?
      • Risk Money Places
    • Identity Theft Protection
  • Strategies
    • Personal Pension Plan
    • Wealth Transfer
    • Basic Money Math
    • Financial Concepts >
      • Split Funding
      • Tax Deferral
      • Saving too Conservatively
      • Yield Ladders
      • Liquidity
  • News
    • Safe Money News
    • Archives
  • Videos
  • Guides
  • Resources
    • Financial Dictionary
    • FAQ / Ask a ?
    • Useful Resources
  • About
  • Retirement Income
    • Fixed Annuity >
      • Annuity Overview
      • Fixed Rate Annuity
      • Fixed Index Annuities
      • Annuity Benefits
      • Fixed vs. Variable Annuities
    • Social Security >
      • Quick Overview
      • How Does It Work?
      • What Are My Benefits?
      • Deceased Spouse
      • Maximize Your Benefits
      • Estimate Your Benefits
    • Savings Bonds >
      • Quick Overview
      • How do they work?
      • What do they yield?
      • Tax Advantages
      • Older / Baby Bonds
    • Banks and Credit Unions >
      • Quick Overview
      • Certificates of Deposit
      • Money Market Accounts
      • Savings Accounts
  • Financial Protection
    • Life Insurance >
      • Overview
      • Different Types
      • Basic Considerations
      • Typical Questions
      • Common Uses
    • Critical Illness Insurance
    • How Safe Are The Companies? >
      • The FDIC Explained >
        • Quick Overview
        • What does the FDIC Cover?
        • How Does The FDIC Work?
        • Who Is The CDARS?
      • National Credit Union Administration (NCUA)
      • Financial Strength
      • What if they fail?
      • Risk Money Places
    • Identity Theft Protection
  • Strategies
    • Personal Pension Plan
    • Wealth Transfer
    • Basic Money Math
    • Financial Concepts >
      • Split Funding
      • Tax Deferral
      • Saving too Conservatively
      • Yield Ladders
      • Liquidity
  • News
    • Safe Money News
    • Archives
  • Videos
  • Guides
  • Resources
    • Financial Dictionary
    • FAQ / Ask a ?
    • Useful Resources
  • About

When you hear the word annuity, what do you think of?

4/11/2018

Comments

 
Picture
People often think of different things. For many people the first thought when the word annuity is mentioned is that an annuity provides an income – a pension is a type of annuity. However, while every annuity could be used to provide an income, the ways in which the income is provided differs depending on the annuity.
​

A period certain income annuity provides income for a certain period. You provide the principal and the insurer will pay back the principal plus interest for 5 years, 7 years, 10 years, 20 years, whatever timeframe you select.

Why might you do something like this? Perhaps you are forced into early retirement at age 57 and you need an income to carry you through until you are old enough to collect Social Security. Perhaps you want to help a grandchild with their college expenses, without giving them a lump sum, a period certain annuity could help cover college costs for the years needed for them to get that bachelor’s degree. Perhaps you already own an annuity and you’d like to convert a part of that annuity value into a tax-free life insurance benefit; a period certain annuity could fund that conversion.

The use of a period certain annuity can also offer certain tax advantages because most of the income produced is not only free from federal and state income taxes, but it isn’t included in calculating whether you owe taxes on your Social Security benefit. It would take too much time to get into all of these different uses, so the main point you should take away from this is a period certain annuity pays out a steady income for a specified number of years.

Those Roman legionnaires were given a life income annuity that paid an income as long they lived. When they died, the income stopped. You can also get the same type of annuity today. It’s a great deal if you live a long time and a bad deal if you get hit by a bus next month. 

Why would you buy this type of life income annuity? People buy them when they don’t plan to leave this particular money to children or charities and want to get the maximum income. A person typically would not put all of their assets into buying a life income annuity, but they might purchase one to ensure they have a guaranteed income to cover the essentials if something happens to their other assets.

A life annuity can be set up to last as long as one person lives or two. If your health and genes are good, a life annuity can provide a dependable monthly income for a long time, so it is often used in conjunction with other assets to provide for a tranquil retirement.

The rap on a life annuity is if you die the insurer keeps any money that is leftover, but that isn’t necessarily true. You can buy a type of life annuity that guarantees that if you die early the annuity will continue to pay out to your beneficiary until your original principal is returned – if you put in $100,000 the insurer will pay out at least $100,000. 

There are a variety of other options. You can have the annuity pay out until you die or for 20 years, whichever is longer. You can arrange it so that your spouse would still get all or half of the original income amount if you die. You can even buy a life annuity that won’t start payments until 10 or 20 years from now. The different options offer different amounts of income. The first annuities were issued by the Roman Empire as a reward to legionnaires for their service. Two millennium later annuities are still being used to provide a dependable income.

Dr. Jack Marrion
This article was written by:
Dr. Jack Marrion
​

Dr. Marrion’s research on senior decision making and the financial world have been featured in hundreds of publications including: Business Week, Kiplinger, Smart Money, and The Wall Street Journal. He is the author of six books and a frequent media guest.
Comments

    FIND THE Today's BEST Annuities for your Retirement

    Picture
    Learn how to get guaranteed returns* with NO market risk. Request a free personalized annuity comparison report now!
    Get My Report

    Archives

    December 2020
    August 2020
    June 2020
    December 2019
    August 2019
    March 2019
    December 2018
    August 2018
    April 2018
    March 2018
    November 2017
    October 2017
    July 2017
    May 2017
    March 2017
    December 2016
    August 2016
    May 2016
    March 2016
    December 2015
    November 2015
    May 2015
    March 2015
    April 2014

    RSS Feed

Search our site:

Speak with an Agent:

Schedule Phone Visit >

Contact us:

Safe Money Places International LLC
11611 N. Meridian St. Suite #110
Carmel, IN 46032
​1-877-844-0900
Ask a question >

FOLLOW US:

Sitemap:

INCOME

Social Security
Fixed Annuities
Savings Bonds
Bank & Credit Unions

Safety

Banks
Credit Unions
Insurance Companies

Money Basics

Money Math
Financial Concepts
Financial Dictionary
Risk Money Places

Strategies

​Personal Pension Plan
Wealth Transfer
Identity Theft Protection

Resources

​Consumer Guides
​Videos
FAQ
News

PROTECTION

Term Life Insurance
Permanent Life Insurance
Single Premium Life
Critical Illness Insurance

DISCLAIMERS

Safe Money Places® and this website are operated by SMP International LLC. Safe Money Places is a consumer website. Safe Money Places is not a licensed insurance agency and financial products cannot be purchased on this website. Safe Money Places® does not warrant anything on this website, although we strive to keep everything accurate and up-to-date.

​We do not provide tax, legal, accounting, or investment advice. You need to do your own homework and consult your own experts on your personal situation. This website is protected by applicable copyright laws. You may make or print one copy of any material for personal use, further copying or distributing is prohibited without prior written permission.

If you have an questions or concerns, please contact us at 1-877-844-0900 OR contact us by filling out our form.

Raymond J. Ohlson, CLU, CRC, is the CEO of SMP International LLC which owns safemoneyplaces.com. Mr. Ohlson is a licensed insurance agent in all states with the exception of New York. If you request information, regarding a product or service, you may be contacted by a life insurance agent licensed in your state.

​Privacy Policy
© COPYRIGHT SMP International 2005- 2021. ALL RIGHTS RESERVED.