How to Decide on an Annuity Payment Option

When you purchase an annuity, you will have to decide on an annuity payment option. It is important for you to choose the best payment option for your unique situation. Here are a few things to consider about purchasing an annuity.

Payment Options

When it comes to purchasing an annuity, you will typically have two options. The first option involves making periodic payments throughout your working life. You will agree to pay a certain amount every year towards the purchase of the annuity. The other option is to purchase the annuity with a lump sum. Many people will use their retirement savings to purchase an annuity all at once right before retirement.

Choosing an Option

You need to decide whether you would rather make smaller payments or one large payment. The vast majority of people that buy annuities do so through a periodic payment system. It is very difficult to save hundreds of thousands of dollars for retirement and then simply hand it over to an insurance company. Most people have a psychological block when it comes to giving away their retirement money. If this sounds like a potential problem for you, you might want to go with the periodic payment option.

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