Are you looking for a steady stream of income that can help you reach your financial goals? If so, you might have heard about pure annuity. But what exactly is a pure annuity, and how does it work? In this guide, we’ll explore the ins and outs of pure annuity so you can decide if it’s right for you.
What is a Pure Annuity?
A pure annuity is a fixed-income investment that provides a guaranteed stream of payments over a set period. The payments can be made monthly, quarterly, semi-annual, or annually. The amount of each payment is determined by various factors, including the amount invested, the interest rate, and the length of the annuity term.
How Does a Pure Annuity Work?
When you purchase a pure annuity, you’re essentially buying an insurance contract that pays a set amount of money at regular intervals. Then, the insurance company invests the funds from the annuity and uses the earnings to pay out the fixed income stream.
Here’s an example of how a pure annuity might work:
- You invest $100,000 in a pure annuity with a 5% interest rate.
- The annuity term is 20 years.
- You receive a $500 monthly payment for the next 20 years.
As you can see, the amount of each payment remains the same over the annuity’s life. This predictable income stream can be a valuable source of financial security, especially for retirees who want a steady income source without worrying about stock market fluctuations.
Types of Pure Annuities
There are two main types of pure annuities: immediate and deferred.
Immediate Annuities
Immediate annuities start paying out immediately, typically within one year of purchase. This type of annuity is ideal for individuals who want to use the funds they’ve saved to create a guaranteed income stream.
Deferred Annuities
On the other hand, deferred annuities allow you to invest money over time and then start receiving payments later, such as in retirement. This annuity is often used as a savings vehicle to help individuals save for retirement.
Benefits of Pure Annuities
There are several benefits to investing in a pure annuity, including:
- Guaranteed income: One of the most significant benefits of a pure annuity is that it provides a guaranteed income stream for life or a set period. This can be especially valuable for individuals worried about outliving their savings.
- Predictable payments: Each payment is determined when the annuity is purchased, so you always know exactly how much you’ll receive and when.
- Tax benefits: In some cases, annuity payments may be taxed at a lower rate than other types of investment income.
- Peace of mind: With a pure annuity, you don’t have to worry about market fluctuations or manage your investments. You receive a fixed income stream.
Next Steps
In conclusion, a pure annuity is an important financial planning tool for those looking to generate an income and gain financial stability for retirement. By combining the advantages of fixed and variable annuities, you can insure against potential loss and still reap the long-term returns of investing in stocks, bonds, and other forms of investments. However, it’s essential to carefully examine your options before deciding if this type of annuity is right for your financial goals. To take the next step towards benefiting from a steady mortgage income stream for years down the line, we encourage you to request a free quote today – get started on turning your dreams into reality!
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Frequently Asked Questions
Can I access my funds in a pure annuity before the annuity term ends?
It depends on the type of annuity you have. Deferred annuities, you can. SPIAs, you can not.
How does a pure annuity work?
A Pure Annuity is a contract where an individual makes a lump-sum payment to an insurance company in exchange for a guaranteed stream of income payments over a specific period of time without any death benefit or other features.