Introduction to the Individual Retirement Annuity

The individual retirement annuity is a common form of investment for those that are saving with the goal of retirement in mind. This type of investment can provide you with a few unique features to consider. Here are the basics of individual retirement annuities and what they can do for you.

Individual Retirement Annuity

An individual retirement annuity is a retirement saving device that is somewhat like an individual retirement account. However, instead of using the money that you set aside for investments, you will be purchasing an annuity contract with the funds. With an individual retirement annuity, you will have a yearly maximum investment that you must adhere to just like with the individual retirement account.

What You Get

The benefits that the individual retirement annuity provides to you upon retirement are different from what you would get from a traditional retirement account. Instead of being able to withdraw the gains from your individual investments and savings, you will receive a set amount of money every month. The individual retirement annuity is designed to provide you with a monthly income for the rest of your life. Therefore, this type of investment is preferred by those that want to guarantee a certain amount of income without having to directly invest their savings into the market.

Purchasing

This type of retirement instrument is not purchased through a traditional financial broker, as many other products are. Instead, you will be working with an insurance company to purchase the annuity. Annuities are considered insurance products, and this means that they are slightly different than most other investment instruments that you will come across.

Benefits

The major benefit of this type of retirement investment is that it is simple. The insurance company tells you exactly how much you have to pay every year during your working life. They will then also tell you exactly how much you are going to receive every month for the rest of your life upon retirement. Many people prefer this type of defined benefit plan over the unknown of investing funds into the market.

Drawbacks

Although this investment does have some benefits, there are a few drawbacks to consider also. One problem with this type of investment is the uncertainty of the company that offers it to you. Since you are dealing with an insurance company, you will have to make sure that you choose an insurance company that will be around 40 or 50 years from now in order to keep paying your annuity payment every month. If the insurance company were to go out of business, your retirement would be lost.

Another drawback of this type of investment is that it is confusing to the average investor. Many individual retirement annuities have confusing contingencies and rules when it comes to contributions and distribution payments. 

Another issue that some worry about is getting back all of the money that they invest. For example, if you die soon after retirement, you will not have gotten back much of your original investment. The annuity may or may not provide for the payment of your funds to a beneficiary in this case.

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