Almost everyone knows that annuities are used to generate income after retirement. Depending on the insurance company you choose, you can increase your retirement income by 20 percent. Besides this, there are many other reasons why you should consider buying an annuity. To help you understand these reasons, this post divides them into two main categories, such as:
Reasons to Buy a Variable Annuity
A variable annuity represents a contract that binds the insurance company to pay a minimum amount at the end of the accumulation stage. The remaining monthly payments typically vary based on the performance of its portfolio. The most important reasons to invest in a variable annuity include:
- Flexible Income: Variable annuities come along with several payout alternatives. By simply choosing specific payment options, you decide how and when you’ll start receiving income.
- Access to Money: A variable annuity allows you to withdraw up to ten percent of the accumulated value without incurring surrender fees. Furthermore, surrender charges are usually waved if the annuity holder becomes terminally ill or needs to withdraw money to move into a nursing home.
- Tax-Free Transfers: This type of annuity guarantees tax-free transfers among different subaccounts. However, you’ll pay taxes on the money you withdraw from your contract.
- Tax-Deferred Growth: Another positive aspect about investing in a variable annuity relates to the fact that you’ll pay taxes only after the insurance company starts making payments. Since this allows your money to accumulate fast, a variable annuity is truly profitable compared to other investment opportunities.
- Death Benefit: Thebeneficiaries of variable annuities receive full account value, with no surrender fees.
To make sure that a variable annuity is the right addition to your retirement portfolio, it’s essential to explore associated features and costs.
Reasons to Buy a Fixed Annuity
Typically, fixed annuities offer safe, but low, return. Although safety is the main reason why many people invest in these types of annuities, a few more factors can convince you to buy a fixed annuity.
- Stable Rates: These annuities provide clear information about the annual interest rate. Thus, you can calculate exactly the worth of your investment at the end of the accumulation stage.
- Tax Deferral: Specific annuities, such as 401 (k) and IRAs, grow tax-deferred. This means that you don’t have to pay annual taxes on the interest you earn on your investment. Although you must pay taxes on the monthly amount you’ll get from your insurance company after it starts making annuity payments, the tax-deferral feature allows your savings grow more quickly than if they had been taxed right away.
- High Returns: Although fixed annuities usually provide low returns, they can also generate high returns when the bond-yield curve is steep. This happens when short-term bonds (e.g. three-month Treasury bills) pay lower rates of interest than long-term bonds (e.g. ten-year Treasury bonds).
The greatest aspect of investing in an annuity is that you don’t have to pay an annual tax on your earnings. Obviously, the ability of making every dollar invested work for you delivers a huge advantage over taxable investment alternatives. Although annuities are some very potent financial instruments, professionals advise people to use them in combination with other retirement income sources (e.g. pension and Social Security plans) to make the most out of them.
- Four Major 0% Credit Card Traps To Avoid
Category: Credit Card
When you’re applying for a 0% credit card, you’ll probably notice a few common features: they all have interest-free periods ranging from about a year to two years, nearly all charge a balance transfer fee (though that is starting to change), and they have certain terms and conditions that must be met in order to keep the interest-free status for the full period of time you should have it for. If you don’t pay attention to these finer details, you can find yourself out of luck and paying a lot of interest every month.
There are certain traps many consumers fall into when doing a balance transfer or using a 0% interest credit card. Don’t let yourself be fooled by these traps or make these mistakes when trying to get out of debt or safely use your credit card without getting into debt in the first place.
Missing A Payment
Many consumers get lax about paying their credit cards when there isn’t interest building up. It’s easy to miss a payment if you aren’t careful, but doing so will do more than add a bit more to your next bill. It can actually invalidate the agreement so the credit card company can charge you interest immediately. If you were counting on a few more years of interest-free payments, this can be devastating. In order to avoid this trap, set up direct debit to pay the minimum each month and ensure the account is always going to have sufficient funds at that time. You can set another date each month to make the rest of the payment.
Forgetting The Transfer Fee
One major mistake is not counting the transfer fee (sometimes called a handling fee) in the calculations of how much you will need to pay each month. If you have a lot of debt to transfer to a balance transfer card, this fee could be as high as £100 or more. The amount typically gets added to your debt so you may not notice it right away. You can calculate the transfer fee by looking to see what it is – typically between 0% for a select few cards and 3.5% for cards with interest-free periods that are longer than average. Then, do the math yourself to see how much it will cost on the card you’re considering.
Hastily Applying For A Card
If you find a credit card you want and apply immediately, then get turned down, it can be a blow to your credit score – potentially preventing you from getting another credit card you were more qualified for. Use an online calculator or comparison site to see which cards you are best suited for, then choose from them when you’re applying. If you apply willy-nilly, you can damage your credit score. There’s nothing wrong with applying for a good credit card if your credit score is good, but most companies will turn you down or offer you a far less favourable card if you have a bad score. Comparing cards online allows you to get the best deal even if you have a bad credit score.
Not Clearing The Card In Time
One major mistake consumers make when getting a 0% card is not clearing the balance before the interest-free period expires. If your time elapses and you still have money on it, you will abruptly begin paying interest, often at a higher rate than your usual credit card would charge. This could be between 16% and 21% or even higher depending on the card. Make sure you schedule your payments ahead of time and calculate how much you need to pay in order to clear your card off in time for the interest-free period to end.
These are just a few of the traps some consumers fall into when they are applying for and using a 0% credit card for the first time. If you’re not careful, you can end up with a damaged credit score, high interest payments, a higher balance, or even without an interest-free card at all. Make sure you know what you’re doing when you’re using a no-interest credit card. All cards have terms and conditions that can invalidate the agreement, so make sure you read the agreement before signing up for a card.