For some people purchasing an annuity is not a luxury but a necessity. Annuities are becoming increasingly popular as people weigh its pros and cons and realize they would rather take a calculated risk than spend the rest of their lives in what some might call an impoverished state. This particularly applies to people who have retired recently and our trying to come to terms with their sudden lifestyle change and considerable income drop that is part of the whole retirement scenario. Realistically, every working individual has to go through this phase eventually.
Let us look at it from the perspective of a newly retired individual and then decide on the type of annuity plan to go for. For a person who has retired recently things look considerably bleak in financial terms. There is a certain way of life that you are accustomed to as an earning member of society. Moreover, you may have retired but most of your major responsibilities are still there. You might have kids in school or College, a sick parent to take care of or mortgage payments on the luxurious house you bought a couple of years back. While there might be some who have some extra money stashed in the bank, not many people think of how they will manage their finances once they have retired from active service.
With so much emotional and financial pressure on you, opting for an guaranteed annuity plan might not be such a bad idea after all. There are certain points that have to be taken into consideration before taking the leap and actually signing a contract for annuity payment purchase. First of all the contract you sign with a company is legally binding; therefore before making your final decision, read the fine print of the contract or get an expert to do it for you. Sometimes minor issues that seem of little consequence at the time might result in far-reaching effects.
What you are doing with an annuity payment purchase, is handing over the lump sum of money you have received on retirement to get monthly or yearly structured installments that are able to fulfill all your needs. The annuity plan will be great for you if you live longer. That would mean that in addition to the amount you deposited initially, you would receive continued installments for as long as you are alive even if they go over the deposited amount. On the other hand, there is no way to guarantee the number of years of your life. For those who die early, the money they deposited lowers the rate for other people who intend on making an annuity payment purchase but your beneficiaries do not get anything. There are however, some joint annuity plans, where your spouse gets at least some percentage of what was being paid to you when you were alive.
You could choose between a fixed rate and a variable rate annuity plan according to your needs and the amount of risk you are willing to take. With fixed rate plans the amount you are paid is fixed or increases by a fixed amount over a period. With variable rate plans, the rate paid to you varies according to the market performance at the time.
Another great option you might want to look into is a guaranteed type of annuity payment purchase. The contract in this case stipulates that payments are made for a certain number of years and if the individual dies before this period, the remaining payments go to the beneficiary. This stipulation somewhat reduces the risk for the individual in question.