Did you recently come into a large lump-sum of money via an inheritance? If so, you may now have questions about what you should do with the money. You have a wide range of options and investment choices available, so it's important that you consider each option carefully. One option you may want to consider is a deferred annuity. An annuity is a product that's offered by a life insurance company. The contract may come with optional guarantees that help you protect your money and make it accomplish a specific goal. Here are a few reasons why a deferred annuity could be right for you:
1. Tax-deferral. Most annuities have tax-deferred status, which means that you don't pay any taxes on your investment gains until you take money out of the annuity contract. By not paying taxes as you make money, that allows your money to grow at a faster rate. If you don't think you'll need the money for a long period of time, you may benefit by investing it inside of an annuity and taking advantage of the tax-deferral feature.
2. Conservative options. Deferred annuities come in a few different forms. There are variable annuities, which allow you to invest the money in the stock market via sub-accounts, which are much like mutual funds. However, if you'd like to stay away from the volatility of the stock market, you could opt for either a fixed annuity or an indexed annuity. A fixed annuity usually pays a set interest rate. An indexed annuity may have an interest rate that can change based on certain economic conditions. Either way, you could still grow your money without taking on the risk associated with the stock market.
3. Guarantees. Some insurance companies will also offer optional guarantees that can help you meet a specific goal. If you select these guarantees, you may pay additional fees every year. Some guarantees are designed to enhance the death benefit, so that you can leave more money to your beneficiaries when you pass away. Others may guarantee your income, so that you can take a fixed stream of income payments from the annuity when you retire. These types of guarantees typically aren't available on traditional investments outside of annuities, so be sure to examine all your options before making a selection.
4. Annuitization. If income is your primary concern, you may consider annuitizing the contract at some point in the future. When you annuitize, the life insurance company turns your annuity balance into a guaranteed stream of income payments. The payment amount depends on your balance, your life expectancy, and current interest rates. The benefit of annuitizing is that you get a guaranteed income check that will last for the rest of your life, no matter how long you live.
For more information on why an annuity might be right for your recent inheritance, contact a financial planning professional like Fogel Capital in your area. They can help you decide whether an annuity is right for you.
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