Annuities Explained – How Annuities Work

Annuities Explained Guide…

Are you wondering about how annuities work?

Before you begin applying for an annuity, you should have annuities explained to you in detail first, preferably by an independent financial adviser so you know exactly what to expect.

By filling up our online no-obligation form, we can arrange for a financial adviser to call you back in order to explain everything about annuities to you.

By definition, an annuity is a retirement investment policy which converts funds into periodic payments that last for a lifetime.

Annuities have three main phases: the purchase period, the accumulation period or the pay-in phase and the liquidation period or the pay-out phase.

Annuities Explained – Purchasing An Annuity

The purchase period is basically when an investor purchases the annuity. This can be done by paying premiums over a period of time, usually years, which can either be level or flexible, or by using your pension funds or a lump sum as a single payment, in which case the phase is shorter.

The Accumulation Period

This is the time during which the payments made by the annuity holder are invested, allowing them to enjoy tax-free growth. Keep in mind that only deferred annuities have an accumulation period and as such, have the potential for higher rates, while immediate annuities skip on to the next phase.

Usually, the longer the accumulation period is, the higher your annuity rates will be during the next phase.

Also, it is important to note that you cannot withdraw your funds during this period. If you do, you will have to pay a certain charge.

The Liquidation Period

This is the period every annuitant wants to enjoy since this is when they will be able to receive returns from their investment. Pay-outs from an annuity can be monthly, quarterly, twice a year or yearly and can be made in advance – at the beginning of a pay period – or in arrears – at the end of a pay period.

Like the premiums, payments can be fixed or flexible. They can also be arranged to escalate, starting with a small amount and gradually increasing by a certain percentage or in accordance with the Retail Price Index (RPI).

These payments will be made for as long as you live, and if you have a joint annuity, they can be made to your spouse for as long as he or she lives.

If you have a single life annuity, though, and do not make arrangements for a death benefit, or for your income to pass on to your heirs, all payments will stop at your death and the remainder of your income will be kept by your provider to provide for other annuitants who live longer.

All these can be explained better by a financial adviser. Once you know how an annuity works, make sure you have the different types of annuities explained to you, as well, so that you will know which one is really the best for your retirement.

To see if you qualify for an enhanced annuity rate please fill in our free no-obligation annuity form. Indeed, by taking a few seconds to provide us with some information, we can arrange for an annuity adviser to contact you and give you free quotes and advice on how to find the best annuity rates.