Archive for the ‘Annuities’ Category

A savings plan is essential to long-term financial health. If you want to be in good fiscal shape, you will have your money in accounts that offer stability and reliable long-term growth. Neglecting a savings plan will ensure that you always have to worry about where your next check will come from. This is a very stressful way to live. You should be doing everything you can to harness the power of compounding interest to make your money grow on itself several times over. The last thing you need to worry about when you retire is how you will pay for your life. It just makes sense to start planning now to avoid any uncertainty in the future.

When choosing a savings plan, it is important to weigh risk against return. You do not want to be in something that is too risky. You could lose your principle and be right back to broke. You do not want to be in something that has too low a rate of return. Your money has to compound significantly to cover you in your old age. If the rate of return is too low, you might not even keep up with inflation, meaning your money will be worth less when you go to use it than when you put it in. That is a bad position to be in. You also want to make sure that you can have regular payments when you no longer have a career income. If all of your money comes in a lump sum, you have to worry about how to keep it safe and how to stay on a budget with the temptation of a large account. If you receive a regular payout, you can easily manage your budget and live like you did pre-retirement.

Tax savings are extremely important when looking into a savings plan. Paying tax on your money today makes it harder to put enough away for compounding interest tomorrow. A deferred tax plan allows you to save pre-tax dollars today and pay taxes on your disbursements when you retire. This way, your payments will be treated exactly the same as your normal career income taxes, which you will have had a lifetime’s worth of experience dealing with. The money that is taken out pre-tax helps you pay less in taxes today by pushing your adjusted gross income lower.

An example of a plan that fits all of these criteria is a fixed annuity. A fixed annuity is a savings account held through an insurance company. The insurance company guarantees you a decent rate of return and guarantees that your principle will never be at risk. You can plan out exactly how much money you will have when you are ready to cash out based on how much you put in over the years. This makes it the ideal plan for detailed retirement planning. When you retire, you will receive a fixed income from the plan that will last you for the rest of your life. It does not get much smarter than that.

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