When I moved down to Florida, I was astonished about the number of older people there in their 80s and 90s. At one time it was unheard of to live that long but that is what is happening in today’s health world. Therefore, it is of the utmost importance to financially plan to live those extra years. And that will be our topic for the forthcoming weeks. An annuity is a contractually executed, relatively low-risk investment product. Where the insured (usually, an individual) pays a life insurance company a lump-sum premium at the start of the contract. That money is to be paid back to the insured in fixed, incremental amounts, over some future period predetermined by the insured. The insurer invests the premium; the resulting profit/return on investment funds the payments received by the insured and compensating the insurer. Conventional annuity contracts provide a predictable, guaranteed stream of future income (e.g., for retirement) until the death(s)of the beneficiaries(s) named in the contract, or, until a future termination date – whichever occurs first.
How Does an Annuity Work?
When you retire, you will want to be able to live comfortably for life on the income from your investments. However, because of modern medicine, many people run the risk of outliving their investment income. With this increasing longevity, a person’s retirement can span 20 to 30 years.
To avoid this problem, the purchasing of an annuity could be a possible solution. An annuity may be considered the opposite of a traditional life insurance policy. When you buy insurance, you agree to pay annual premiums to an insurance company. In return, the company will pay, according to your instructions, the face value of the policy in a lump sum to your beneficiaries when you die. By contrast, when you buy an annuity, you pay the company a sum of money and, in return, receive a monthly income for as long as you live. Naturally, the longer you survive, the more money you will receive. Therefore, you can never outlive your return regardless of how old you become. It thus can be stated that life insurance protects against financial loss as a result of dying too soon, while an annuity protects you against financial loss as a result of living too long.

Thought For The Week

Try changing your password to “incorrect” so whenever you forget it, type in any word and your computer will say “your password is incorrect.”