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The Retirement Annuity

Retirement Annuity

A retirement annuity is a plan in which the individual contributes money to an insurance company,which is later returned over time. A retirement annuity is a type of retirement savings plan, as the individual is insuring that they will have an income later.

Retirement annuities are a contract between the individual and an insurance company. This contract guarantees that the individual will have an income upon retirement. In general, the contact allows that individual to receive payments until death or until a certain point in time, which ever comes first.
However, a retirement annuity is not always used as a retirement savings plan. Instead, some individuals use the annuity to allow them to make contributions tax free. They may instead opt to take the money out in a lump sum at some point, perhaps before retirement, as to avoid the potential of missing out on payments should they pass away prematurely. In addition, utilizing an annuity in this way helps the individual to avoid taxes, although they may pay a penalty for the lump sum withdrawal.

Life insurance is also a form of annuity which works very similar. The individual makes payments to the insurer, so that payment can be made to beneficiaries upon their death. Often times, these annuities are treated in the same manner as retirement annuities. The payments may be made in a lump sum or the individual may chose to have the beneficiary receive payments.

NEXT: Understanding The Civil Service Retirement Plan

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