With the advances in medicine, people are living longer. As a result, they need a way to have retirement funds. Annuities provide Social Security and individual retirement accounts. They are offered by life insurance companies and are similar to mutual funds, but with tax benefits that make them attractive. However, they take many different forms and they have limitations, so it is important to ask questions when purchasing one. It is best to buy an annuity from a broker who is not selling just one company’s products but can pull from a variety of products.
Life Insurance annuities are financial contracts issued by a life insurance company that offers tax-deferred savings and a choice of payout options to meet an owner’s needs in retirement such as income for life, income for a certain period of time, or a lump sum.
The process of acquiring this can be done this way; a seller of a financial institution such as a life insurance company makes a series of future payments to a buyer in exchange for the immediate payment of a lump sum or a series of regular payments, prior to the onset of the annuity.
If you want to access the money you put into an annuity before the maturity date, you will be charged for the surrender fee, which generally decreases over time after the first year of the contract. Many annuities allow you to draw out interest without penalty, but if you draw income before age 59 1/2, you will also have to pay a 10 percent tax penalty to the Internal Revenue Service, and the IRS will also tax your earnings at your regular current rate. So it is better if you take your annuity on the right period, since you will have full retirement funds in the right time with a sufficient amount.