Income annuity - How it works

Retirement is an inevitable phase of your life, but you have years to prepare for it to be comfortable. To make sure you will be worry-free when you retire, see to it that you have enough lifetime income to cover your basic expenses in the future. This is where your income annuity comes in. When you buy an annuity, you enter into an agreement with an insurance company to put periodic deposits into your account which you can later receive in lump sum or regular payments when you retire.

When you purchase an income annuity, you get access to several options. In short, an income annuity provides you with a safe and secure way of turning the money you saved for your retirement into a retirement income. Simply put, you pay or contribute a certain amount through a lump sum in your account and your insurance company provider will return your investment in a series of payments at regular intervals. You can opt to receive the payments for the rest of your life, or for a particular period of your own choice.

There are several payout options for income annuity available in the market, customized to fit the different needs of individuals and you only have to shop around to see which ones suit you best. With income annuity, you get to enjoy several benefits including security of your premium. This means that no matter what happens, if there is market fluctuation your premium is not affected and your retirement plan is safe. What is more, you also have inflation protection which means that you have the chance to increase the amount you are paying each year.

With the income annuity, you also enjoy total control and flexibility because you can choose to receive payments whenever you want to. The income annuity provides you with a regular income that will always be there for the rest of your life, offering you stability. Other benefits of the income annuity are your freedom to choose from several options for income payment and this could be through a fixed period, fixed amount, life, life with a certain period, life with a refund, and a joint and survivorship method.

When you purchase an income annuity, you buy it with a lump sum payment and you determine when you want to begin receiving payments. An income annuity could either be a fixed or variable annuity. What you need to know is that the moment you purchase an income annuity, you will lose access to the principal amount so if you need immediate cash for your instant needs, you may think of setting aside a separate retirement fund in another account which is readily accessible. This way you won't be left strapped for funds when you need it.