If you are approaching retirement age then you will have come across this thing called an annuity. Even if you are starting a job for the first time, and making your first payment to a pension you may have heard the word annuity. But what is annuity? An annuity is a way for you to take care of yourself financially once you retire. For some this may seem like a faraway thought, but for others it is right around the corner. No matter your age, what is annuity is a good question to be asking.
During your working life you have been saving a pension, either just with your employer or perhaps you also have a private pension fund. In either case, when you retire you will need to find a way to make that money last for the rest of your life. You, however, have no idea how long that might be and budgeting for a lifetime can be extremely difficult. Not to mention that living expenses are increasing every year, and the money you have saved simply won’t go as far as you would like.
This is where knowing what is annuity, can come in handy. With an annuity you will exchange the money you have saved through your pension for an annuity and this annuity will guarantee you an income for the rest of your life. Annuity providers use the average life expectancy to calculate how long one might live and how much money they will need over that time. This is of course only an estimate, but when you come to look into what is annuity, you will come across annuity calculators. This calculator will ask you to input your gender, age and any medical conditions and with this information it will offer a possible annuity rate.
That rate will be the rate of return that you will receive from your investment. When you give the insurance company your pension, they use the money to buy government bonds and gilts and it is the return from this investment that gives you your regular income. There are many different options to consider if you decide to take out an annuity. But the first step in understanding those options is understanding what is annuity. It is not complicated, but there is a lot of information available so it can be a bit overwhelming.
Once you reach the age of 55 you will begin to think about how best to make your retirement savings last for as long as you will need them. This is a difficult proposition, and there are many options that are available to you. About six months before you retire you will be sent an information package by your current insurance company. In this package will be information about the annuities that they have to offer. However, it is in your best interests to compare annuity rates.
If you are even considering taking out an annuity then the worst thing you can do is take the first annuity offer that you get; you absolutely have to compare annuity rates. The first reason is that once you have bought an annuity you cannot get your money back, and the second reason is that if you are going to try to take care of yourself financially for as long as possible you will have to find the best annuity rate to get you through the rest of your life. This is why you have to compare annuity rates.
But what is the best way to compare annuity rates? A good place to start is with annuity calculators. Most annuity providers have these on their websites and with a bit of personal information they can give you an idea of the kind of annuity rate that you can expect from them. These quotes are not guarantees, only a guide. So the next step to compare the best annuity rates is to get an actual quote from the annuity provider. There is also another way to compare annuity rates and that is to go to independent annuity observers like the FSA and have a look at their rates.
By deciding to compare annuity rates in this way you will have an idea of all the annuity rates that are available and what the various annuity providers have on offer. Each annuity provider will have something slightly different to offer and slightly different annuity rates and of course you will want and need the best annuity rate, and annuity package that you can find. Shopping around and making the effort to compare annuity rates is not a waste of time, it is preparing for your future. So take the time and go through the various steps until you find an annuity rate that works best for you.