Graph of interest on annuities

An Overview of Bonus Annuities

Annuities have always been a popular way to invest for a nice retirement. These are typically purchased through insurance companies, and there are two types, fixed and variable.

Types of Annuities

A fixed annuity allows people to invest a certain amount of money in order to receive a certain amount during their retirement years. A variable annuity is a little more of a gamble, as investors could actually invest less money and end up with a nice retirement, or possibly lose all of their money. The type of annuity selected really depends on the individual, as some people like the thought of risking their money for a huge return while others would rather have a guaranteed amount. However, there has always been a slight issue with annuities when people move them to another company. These people end up having to pay high fees, which can wipe out a nice chunk of their profits.

Benefits of a Bonus Annuity

The good news is that companies are now offering bonus annuities. The nice thing about these is that the seller will match a certain percentage of the earnings, which is typically around five percent. This may not sound like a lot of money, but it will essentially allow the account owner to receive twice as much in earnings. The concept of the bonus annuity is that the extra earnings will allow the user to switch companies, without losing any of the true interest earned. This is something that people should definitely consider, as people are no longer staying with the same company for their entire career. However, it is important to note that people should not invest all of their money in a bonus annuity, as any investment is a risk.

Aside from receiving a match on the interest returns, bonus annuities have several other advantages over typical annuities and other savings plans. The biggest advantage they have is the higher interest rate. When people invest in an ordinary savings plan, they will be lucky to earn two percent interest, especially when the economy is in a recession. Another benefit is that these are tax deferred until the person reaches 59 1/2 years of age. Once they begin to withdraw, they will be exempt from paying federal taxes. Another nice thing about these is they essentially act like a paycheck for retired people. Other investments allow the account owner to withdraw all of their money at once. Having instant access to every investment may sound great to a lot of people; however, most will feel more secure receiving a monthly check. This will allow them to establish a better budget, as they will know exactly how much income they will receive each month. Other investments may allow them to continue earning money, but they do not guarantee the investor a dime tomorrow.

The final benefit of bonus annuities is that the fixed plans are as safe as any bank savings plan. If any company offering bonus annuities goes out of business, the other companies are obligated to cover the investment. Investing agencies have to show a lot of documents before they are issued a license to sell any type of investments for this reason. Bonus annuities are something that every investor should inquire about, as some companies do not directly offer them to a customer. It is kind of like negotiating for any other purchase, where the sales staff wants to make as much as possible while the customer wants to pay the least amount. However, without customers a business could not survive, so it is important for customers to ensure they are getting the most value from their investment.

Last Updated: January 30, 2017