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How your money is invested in annuities


Pretty much everybody is familiar with the term investments because it is a way for us to get a return on the money that we have invested so that we can benefit from them sometime in our future. Investments are gaining popularity because of the fact that Social Security is nowhere near close enough for people to live off of when they retire, many people are finding out that they need to invest money into other types of investments just so they can survive when they retire. But investments don't have to be used to save money for your retirement, investments are just a great way to earn a return on your money, meaning you will end up getting more money then what you put into it, well at least that is what is supposed to happen. But what some of us average people don't understand is how our money is invested in things like annuities or even what annuities are.

First let us take a look at what annuities are before we go on to explain how your money is invested in annuities. Annuities are a type of an investment that is an agreement between you and the insurer and works to produce income for you and protect your earning potential; many people receive an annuity when they retire. This type of an investment is a tax deferred income which means that the money you put in is not taxed, but it will be taxed once you take it out. There is usually a time limit on this income and if you withdraw it early you will be paying higher taxes.


Now basically what happens when it comes to annuities one thing that you need to know is that annuities are usually used to provide income for you during retirement. Basically what happens is you pay an annuity issuer a sum of money either all at once or over a period of time and they then invest that money for you in different things, which can include the stock market or other types of equities depending on what is agreed upon by you and the annuity issuer.

The type of annuity you own determines whether your money earns a fixed amount or an amount that depends on the equities in which the annuity is invested. At a designated time chosen by you, known as the maturity date, the insurance company generally begins to send you regular distributions from the annuity's account. Some annuities will actually let you withdraw the money in one large sum.

But something that you need to know about investing your money in annuities is that the money is tax deferred until you withdraw it at a certain time for your retirement. So what this means is that when you are saving the money you do not have to pay taxes on it but you will have to pay taxes on the money that you are investing at a later date. You also need to keep in mind that if you withdraw the money early, before the maturity date, then you will have to pay a tax penalty on the amount that you have withdrawn early. The penalty is usually around ten percent.

But you also need to be aware of the fact that there are different kinds of annuities that you can invest in so you need to do your research and then choose the one that best fits your needs. The most common types of annuities are: single premium immediate annuity, single premium deferred annuity, variable annuity, and annual premium deferred annuity.


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