Payout Annuities – Essential Facts

Payout annuities can be an integral part of a retirement investment plan as it pertains to providing the guaranteed necessary income to cover your fixed expenses in retirement. Payout annuities have increasingly become popular in the past few years because of their easy, low-risk and conservative approach to financial planning for a retiree. Today, many people are considering annuities for their retirement budget strategy.

What are Payout Annuities?

Payout annuities are basically insurance products that pay the investor a guaranteed regular monthly income for the rest of the investor’s life or for a fixed term. A payout annuity presents the investor with several benefits, features and options to suit the investor’s financial situation or income needs. As an investor, the payout annuity enables you to convert your savings into a guaranteed income for your entire life or for a set period of time.

A payout annuity payment is normally comprised of principal and interest, which are based on the:

  • Type of the annuity
  • Amount of money used to purchase the annuity
  • Length of time for which the payments are guaranteed
  • Age of the investor (and sometimes the spouse’s age)
What steps do you need to follow to get a payout annuity upon your retirement?
  • The first step is: you need to save for your retirement so that when you retire, the savings can provide you with an income for a specified period of time or for as long as live.
  • Next, you purchase a payout annuity product from any insurance company of your choice. The insurance company calculates the monthly income you will get based on the type of annuity you have chosen, the length of your life, and long term interest rates.
  • Once you have set this up, upon your retirement, the insurance company sends you a pay cheque for the period you specified, or for the rest of your life
What are the different types of annuities can you choose from?

You can choose a particular type of a payout annuity to suit your financial circumstances. There are different types of annuities you can purchase, namely:

  • A life annuity which provides you with monthly income payments for as long as you live. In the event that you die early, the payments will be made to your beneficiary.
  • A fixed term annuity which provides you with payments over a specified timeframe. In the event that you die before the agreed payments are made, your beneficiary receives a death benefit.
  • Joint and last survivor life annuity which provides you and your spouse with payments for the rest of your lives.
What are the advantages of investing in annuities for your retirement?

There are several benefits you can enjoy when you purchase a payout annuity, as follows:

  • You will be guaranteed to get a monthly payment every month, which will provide you with an income during your retirement.
  • You will not run the risk of running out of your savings and find yourself with no money to meet your living costs during your retirement.
  • You get a safe and low risk investment vehicle, compared to other types of investments, such as stock markets. As you grow older, the last thing you want is the stress and worry that you may get if you invest in other types of investment vehicles that are associated with high fluctuations and high levels on uncertainty.

While you may have other sources of income when you retire, payout annuities can be an important part of your financial plan. Providing you with a guaranteed pay check every month, a payout annuity gives you the peace of mind and financial flexibility you need to enjoy your twilight years.