Annuities: a useful savings option

LIVING comfortably after retirement requires forward planning to set up your finances to support such a lifestyle.

Income-paying insurance products such as annuities, may provide an avenue for comfortable living provided that a sufficient amount was invested. Through these investments, individuals can receive a steady income to supplement other retirement savings. “An annuity essentially pays a retiree an income of the amount specified and at the time specified and agreed upon by the insurance agency and the client,” Sagicor’s Randolph Mclean told the Sunday Finance. Annuities may be purchased with a lump sum amount or paid over a period until the stated amount is accumulated. For this reason they are typically bought by retirees since those individuals would have amassed a large amount by the end of their working years, Mclean explained. “That is not to say annuities can’t work for those still in the working years,” the advisor reasoned, adding that individuals should consider setting up their retirement benefits the day they begin their professional lives. The client has the option, as well, of selecting when the income payments from the annuity begin. If a client purchases an annuity at age 30 but wishes to receive income payment at age 60, a deferred annuity is enforced. Conversely, immediate annuities disburse payments when the contract takes effect pending the specifications and regulations of the policy. Investors can buy into a variety of annuities. Refund annuities allow the remaining amount on the policy to be paid to a beneficiary if the client dies before the total value of the policy is paid out. An annuitant can also opt for a lifetime payment. However, with this option the remaining amount is kept by the insurance company, if the policy outlives the client. “One of the benefits of an annuity is the reinforcement of the need to prepare for retirement,” Mclean said, adding that persons may be tempted to “eat a lump some of money or spend it all on their relatives, leaving themselves exposed to the hardships that life can bring”. Caribbean Assurance broker, Conrad O’brian agreed, adding that the cash value of an insurance policy can provide the lump sum to purchase an annuity. The size of the income payments depend on the amount invested as well as the type of annuity selected. “There is no set amount for purchasing an annuity,” O’brian explained. An insurance advisor will review the client’s circumstances and make the best suggestions that meet the client’s needs, he said. Parents may also buy an annuity for their children and “set it up to pay them when they are of age” O’brian advised. “This is a good savings tool and it will encourage the child to store money for old age,” he reasoned. The cash value of an insurance policy can provide the lump sum to purchase an annuity.

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