How annuities make money for you

04
October

You’ve worked hard for your money. Let’s face it: When it comes to money, you need all the help you can get in order to make it work for you. Of course, if you don’t know much about investing, don’t feel bad. People go to years to college to try to learn proper finance and they still don’t always get it right. So let’s look at how annuities make money for you over time.

An annuity works kinda like life insurance, except in reverse. with life insurance, you pay small amounts over time, and when you die, the life insurance kicks in and the money is paid. But with an annuity fund, a large amount (or multiple amounts) of money is paid up front and you end up getting paid small amounts over time. Normally a company will give you what is called a “fixed annuity” which gives you the same amount of money month after month. If they promise you $850 a month, that’s all you’re going to get for life. But a great way to make money is with something called a variable annuity.

A variable annuity works entirely different, in that you may end up getting more money every year based on inflation or an increase of a certain percentage every year, which means you’ll earn more money over time. In most cases, an insurance company will have this annuity option where you not only can make money, but you can also withdraw, or “Cash out” a small amount every year. Usually this amount is 5 to 6 percent of the investment you put in. It’s called a “guaranteed withdrawal benefit” and it’s something you should ask for if you don’t feel like waiting around for years or decades to cash out.

The second way is by diversifying your portfolio. When a portfolio is diversified, it combines stocks and bonds to work harder for you. Don’t be afraid to ask your investor about the guaranteed withdrawal benefit. One drawback is that when you do ask about this, they’ll probably bring up what is known as a “variable annuity fee”. This is unavoidable, but you can always shop around to see who gives the best rates in that regard. In most cases, a variable annuity that has the guaranteed withdrawal benefit will allow you to withdraw 5 to 6 percent of the balance every year, regardless of how your investments perform in the markets. You can also take your annuity and cash out your entire balance investment, but the company will charge you a surrender fee for this.

The trick to making money with an annuity in the short term is to weigh the amount you can cash out every year and what’s happening with your investments versus what is being charged in fees. Generally speaking, the investment company will charge you a fee for guaranteed income and a fee called the “standard variable annuity fee”. But also remember that like with car insurance or electronic shops, you can take your investment elsewhere. Always weigh your options and go with what works best for you. Remember: it is your money, not the investment company’s money. The good news is: We live in the 21st century and in the information age, you can get all the information you need in a few minutes of browsing if you understand the jargon, or if worse comes to worse, talk with a financial planner. One you can trust and don’t be afraid to get another opinion if this one isn’t to your liking.

In conclusion, trying to get ahead in stocks, portfolios and investments is tough work, but in the words of Gordon Gekko from the movie Wall Street: “What’s worth doing is worth doing for money”. And in reality, that’s what you want out of this: You’re giving an insurance company your hard earned money in the hopes that they will give you small amounts of money and in the long run, create more money than you put into the annuity. The corporate world is a competitive market, but you can get ahead with the right information.

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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