Showing posts with label annuity rates. Show all posts
Showing posts with label annuity rates. Show all posts

Sunday, August 5, 2012

How to Find the Best Annuity Rates: Maximize Your Pension Income

retirement
retirement (Photo credit: 401(K) 2012)
There is no easy way how to find the best annuity rates, and the likelihood of you doing so will increase with your knowledge of annuities. Most people save their annuity through the companies they have worked for over their working life. When you retire you will be provided with a pension fund that you are permitted to use any way you want - as long as it is to purchase an annuity. Others save independently, and provide an insurer with a cash sum in return for a monthly income until their death.

Before trying to find the best annuity rates (see more), you must first decide what type of annuity you want. We are assuming here that you understand what an annuity is, and that you want the best possible pension deal from your pension fund. In simple terms, an annuity rate is the rate of interest paid on the amount you save for your pension, and also on the balance of the lump sum available once you claim that pension.

Technically, the term 'annuity' is the fixed regular sum received after saving or paying a lump sum of money to purchase it. However, in recent years, the term has also come to refer to the cash fund accumulated to pay for a pension after retirement. So in today's terms, it is fundamentally an investment for your retirement pension, although there are various options in how you make that investment.

In order to find the best annuity rates available to you, you must first be aware of the various types of annuity rates on offer. Here are some of the more common:

Deferred Annuity Rates

Deferred annuity rates apply to an annuity whereby you pay money into a retirement account over a period of time that grows into a lump sum that is generally use to purchase an annuity, or regular monthly pension that is based on the lump sum. That lump sum will be dependent upon both the regular payments and on the interest rate applied.

There are two types of deferred annuity. One is the CD-type that guarantees an interest rate for the period of the annuity: this would often be taken if you have a lump sum to invest for your retirement, and you want a guaranteed interest rate to apply year on year for the period of the annuity contract. If you retire in 10 years, the contract period is 10 years, and you are guaranteed the interest rate for that period.

The interest rate remains the same irrespective of external rate fluctuations as long as no withdrawals are made until retirement date. This will suit you if you want to avoid the uncertainties of rate fluctuations over the years - you are protected from interest rate reductions, but will not be able to take advantage of any rate increases.

Another type of deferred annuity rate is the Annually Renewable deferred annuity. With this, you are guaranteed an annual interest rate which is changed each year by your insurance company. Keep note that your insurance provider is not necessarily your annuity (pension) provider, because you can use your saved lump sum to purchase an annuity from any company of your choice.

Immediate Annuity Rates

Immediate Annuity rates apply to a lump sum paid into a pension fund which immediately begins to pay out a monthly pension. Those to whom this is relevant are people who have a lump sum of cash, such as from saving for an annuity as above, and are ready to provide that lump sum to an insurance or finance company to pay them a monthly pension.

When looking to find the best annuity rates, therefore, you should seek out the best interest rates while you are still saving, or on a lump sum you use to purchase an annuity on your retirement. In the latter case many will seek an increase in their monthly payments that follows the rate of inflation. You do not want to find your pension income reducing in spending power!

It is important that know how to find the best annuity rates, because your monthly pension income could vary by as much as 40% according to the annuity interest deal you make, and the type of annuity you select.

Irrespective of whether you have been saving privately or are using a lump sum accrued over a period of employment, you will want to know how to find the best annuity rates that will make the best use of the lump sum you place into the hands of your choice of insurance company.

Thank you to iAnnuityRates for helping research this article.


Join 1000's of People Following 50 Plus Finance
Real Time Web Analytics