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WHY ANNUITY ?
When you’re young and healthy, you might think you can work forever but spend more time with older people and this myth will be dispelled pretty quickly. This is why it is prudent to plan for retirement early enough. Health problems is the number one reason people retire early, and we are all more vulnerable as we age.
The significant change in social structures means families now live far apart and the care that was given to the older generation is no longer assured. This change will not end soon and as such each individual needs to take responsibility of their retirement as early as possible.
With proper planning however, you can provide yourself a guaranteed retirement paycheck that will last as long as you live. We realize this by creating a retirement distribution plan to help you reduce the risk of outliving your money.
An annuity is an investment option that provides a guaranteed income for an individual or their spouse throughout their retirement. They are purchased for a set period and payout a specific amount in retirement based on the investment strategy and amount invested.
Annuities are designed to be a long-term component of a financial plan along with other retirement income streams. They are particularly good for people that want the option of a lifetime income during their retirement and may have concerns about outliving their savings.
WHAT YOU NEED TO KNOW
What is An Annuity And Why Do I Need One?
An annuity is a contract between an individual and an insurance company where the individual makes a lumpsum payment to an insurance company which converts it to a series of regular lifetime income payments. To purchase an annuity plan, may pay an insurance company a lump sum premium just before retirement. Alternatively, you can make periodic premium payments until your selected retirement age. Upon retirement, the insurance company will provide income payments for the rest of your life. You can also choose to have your income paid every month, every three months, every six months or once a year. You may purchase an annuity for yourself or for your loved ones.
Parties involved in an annuity contract
In Kenya, retirement annuity policies are provided exclusively by life insurance companies. The following are the parties involved in an annuity contract - 1. Insurance Company - Issues the contract, provides contract information, allocates the money as instructed by the owner, and is responsible for the guarantees and payments. 2 Annuitant - The owner and the annuitant may or may not be the same person. However, it’s the annuitant’s life expectancy that is used to set the amount of future annuity income. This means you can take an annuity for someone else such as a parent, spouse, or sibling. 3 Beneficiary – Usually the beneficiary is the one who may have the right to receive the death benefit if the owner or annuitant dies before income payouts begin or before the end of the guaranteed period of payment.
How Do Annuities Work?
1. Participants select the annuity type and pay into a plan purchased through an insurance company. 2. The insurance company invests the payment from the annuitant, so the account earns interest on top of the original amount invested for the duration of the contract. 3. Once the annuitant decides to receive payments from the annuity, payments will be made up of a return of the original investment plus interest, minus fees. 4. The annuitant receives income during the retirement period.
How is My Annuity Amount Determined?
An annuity's value is the sum of money you'll need to invest in the present to provide income payments down the road. The main factors considered by an insurance company when pricing annuities include mortality tables, investment returns and administrative expenses. Others include prevailing interest rates, age, gender and the guarantee period.
What is A Guaranteed Period of Payment?
An annuity contract may grant a guaranteed period of payment, perhaps five, ten or fifteen years where a specific payment amount is assured, whether the annuitant survives this period or not. If the annuitant dies during the guaranteed period, the balance of the guaranteed payments is paid immediately to the appointed beneficiary.
What Are the Different Types of Annuities?
There are mainly two types of annuities to choose from. Before selecting, consider your financial goals, the timeframe when payout is desired and fee structure. 1. Immediate Annuity - The monthly income becomes payable immediately after purchasing the annuity, suitable for those who are about to retire or have already retired. 2. Deferred Annuity - The premium can be paid periodically until retirement age or it can be paid as a lump sum. The payments from the insurance company will be issued in the future on a time agreed upon with the customer.