Preparing for retirement is something that shouldn’t be put off for too long. In fact the sooner people are able to begin to think about this the better. When we are just starting work our retirement can seem like a very long time away, but this is when we need to start getting ready. These days many people choose annuities to protect their long-term future.
What is an annuity?
An annuity is a type of retirement insurance that will provide you with an income after you retire and for as long as you live or for a specific period. While you are still working you invest money into the annuity and then you will be paid out of this at a later date; you can choose to get your annuity every month or every year if you prefer. There are different types of annuity including the fixed annuity and the variable annuity. A fixed annuity will pay guaranteed amount while a variable annuity will pay you dependent on how well the investments that underlie your annuity are performing.
Another way that annuities differ is in regards to whether they are immediate or deferred. With a deferred annuity the money is invested and you don’t see it again until you retire. An immediate annuity is one where you begin to get money back off it soon after you begin it. This immediate annuity can be something that appeals to those people who are already about to retire.
The Disadvantages of Annuities
One big complaint that you will hear about annuities is that they can work out really expensive. You will probably be expected to pay annual fees and those handling your annuity will likely take a commission fee. Another disadvantage is that you may lose quite a bit of money if you need to withdraw from the annuity earlier than expected. It should also be noted that if you die early you are not going to get the benefit of an annuity; although your family may get a payout.
The Annuity and Tax in the UK
If you are getting money from an annuity you will need to pay tax; the only exception to this is purchase life annuities (http://www.hmrc.gov.uk/pensioners/pension-retirement.htm). When it comes to paying your tax you will do in much the same way as you would if you were working using the Pay as You Earn (PAYE) scheme.
Is an Annuity a Good Choice for Your Retirement?
These days people are living for longer than ever before and a lot of their life will be spend in retirement. If individuals don’t prepare for this time it will mean that they will struggle at a time when they should be really enjoying life. An annuity is one retirement product that will suit a lot of people; especially in combination with other retirement provisions. This is not something that everyone will want to choose, but it is something worth considering. The Investors Chronicle (http://www.investorschronicle.co.uk/) advises that people fully investigate an annuity to see if this is something that will suit them.