Sometimes, however, annuities can prove inflexible. Maybe you have the perfect opportunity to start your own business or purchase a vacation home. If you could cash out of your annuity, you might have the necessary funds. Unfortunately, many annuity contracts come with restrictions or penalties that can either limit your ability to make withdrawals from them or make the prospect highly unappealing.
Types of Annuities
There are several different types of annuities, including:
Mutual fund companies, large banks, and investment firms offer retirement annuities to people who want to ensure that they have a dependable source of income upon retirement. During their careers, people that elect for this kind of plan deposit a portion of each paycheck into their annuity fund, which accrues interest until retirement.
Structured Settlement Annuities
If a plaintiff wins a personal injury claim, they may receive a structured settlement annuity as compensation.
Annuitants can sometimes designate an heir to receive their payments if they were to pass away. This often involves a modification of the policy, also known as a rider.
Immediate vs. Deferred Annuities
As with most investments, annuities can pay out in several different ways.
This kind of annuity allows you to start receiving payments almost right away. Generally, you can only purchase an immediate annuity with a single lump sum, as opposed to small investments made over time. Because these annuities start paying out right away, they generate a smaller amount of interest. However, this also makes them a popular option for those already close to retirement.
Once you begin receiving payments, companies may not allow you to withdraw your lump sum. However, JG Wentworth can provide you a lump sum by buying your future payments.
As you are making payments into the policy, the insurance company invests the money, generating interest and growing the account. Once you retire, you receive this money in the form of regular payments, supplementing social security and any other retirement investments you may have made.
Deferred annuities may carry a buyout clause. This stipulation allows the annuitant to cancel the annuity early and receive a lump sum. However, this clause often involves an early withdrawal penalty.