Are you thinking of taking out an annuity but just aren’t sure how they work? Are you worried about how you will get your annuity payments?
Not to worry! If you’re wondering how annuities work, you’ve come to the right place.
We will take you through what annuities are, how they work, and what your options are in terms of payouts. So, let’s dive straight in and understand annuity payments!
What Are Annuity Payments?
An annuity is a financial product offered by banks and sometimes other lenders. If you take out an annuity, it means you are paying the bank a sum of money and they will pay the money back to you slowly over time.
An annuity payment is a partial repayment the bank makes to you for the money you have given them.
How Do Annuities Work?
The main idea behind annuities is that they give retirees confidence that they will not outlive their savings. By investing in annuities, you get a guaranteed income for a set period of time, and you also earn interest on the money you have contributed to your annuity.
There are two main ways that annuities work. The first is that you make a lump sum payment to a bank, and then it will begin paying you your annuity payouts.
The other option is that you make a series of contributions over time until you reach an agreed amount with the bank. This is called the accumulation phase. Once this amount has been reached, the bank will start making payments to you.
When the bank begins to pay you money, this is called the annuitization phase.
Annuity Payout Options
Different banks will offer different annuity payout options. The two main things you need to decide are how often you want payments and how large you want the payments to be.
One of the problems with annuities is that you may enter into a contract for a particular payment structure, but then your situation changes. Many banks won’t let you change the contract.
In this situation, you can look into something like Rightway Funding, which will give you annuity payments when you need them — for example, in an emergency.
You need to take the time to make sure that you are going to be getting annuity payments that suit you. It’s a good idea to do an audit of your lifestyle, as well as to take the time to think about any large costs that may come up (e.g. medical costs).
Be Prepared with Annuity Payments
A lot of people get to retirement without taking the time to work out their finances properly. The most important thing when planning retirement is to set something up early.
Annuity payments are a sure source of income for you and will mean that you can’t spend more than you have. So, get organized and find an annuity broker. You won’t regret it!
If you’ve found this article useful, why not check out some of our other great articles on financial tips?