What an Individual Retirement Annuity is and What It Does

September 27, 2022

You have probably heard about an individual retirement annuity and how it can help you during your twilight years. But you also are probably not entirely sure about what it is. As you prepare for retirement, there are several options for saving money. Most people determine savings methods after considering their circumstances, financial goals, and any tax implications.

Individual Retirement Annuity: How It Works

For some, an individual retirement annuity is an opportunity to increase their retirement savings.

How Does a Retirement Annuity Work?

A retirement annuity is a contract where individuals pay either a single premium or add money over the years and receive payments with additional interest during their retirement. Unlike traditional securities, this type of contract can be fixed for a certain number of years. It is also called a personal retirement annuity. It means the contract has an individual's name, with only the named owner or their beneficiaries receive payment.

There are limitations to the annual contribution, which is similar to other individual retirement accounts. You may choose to have the money within the annuity grows tax deferred. Minimum distributions are later required. Individuals must withdraw the minimum amount by April 1st, following their 72nd birthday.

Purchasing the Annuity

For those who aren't sure how much Social Security or other benefits they will have access to during retirement, an annuity can provide some financial control and peace of mind. There are different annuities, as well.

  1. A fixed annuity provides a guaranteed minimum rate of return and a specific number of payments.
  2. A variable annuity uses the premiums paid to make investments, and the payout depends on investment performance.
  3. An indexed annuity shares a combination of features from both a fixed or variable annuity.

What Is the Difference Between IRA and an Individual Retirement Annuity?

There are several differences between an individual retirement account and an individual retirement annuity. Also, an IRA can hold mutual funds, bonds, stocks, or other securities, instead of just annuities. People must purchase an IRA through a brokerage firm with a higher contribution limit. These accounts tend to have fewer fees and a much higher potential concerning returns.

It's important to consider all your options when saving for retirement. When opting for an individual retirement annuity, you can enjoy tax benefits and future peace of mind.

About 1891 Financial Life

At 1891 Financial Life we don’t just sell policies, we offer possibilities. We pride ourselves on giving back to the communities that we serve by providing quality and comprehensive insurance solutions. We are a not-for-profit life insurance Society, which means the sales from these financial service products help fund member benefits along with social, educational, and volunteer programs designed to respond to community needs.

Our portfolio is extensive, ranging from various life insurance policies to our annuities to support your financial needs no matter what stage of life you’re in.