Annuities - Getting a Grasp of Your Options

Planning for retirement seems like it should be fairly simple. Earn money. Set aside a certain percent for retirement. Invest it wisely. Live comfortably when you retire. Ah, if only it were that easy. A quick glimpse into the world of retirement planning will quickly reveal that game is a bit more complex than just this.

Annuities are a part of the puzzle when it comes to retirement planning. The real beauty of an annuity is you receive monthly payments for a certain period of time in exchange for making contributions during an earlier period when you are making big bucks. If you are considering buying an annuity, there are a number of variations. In this article, we take a look at the three most common types.

Term Certain Annuities are perhaps the most common form of this retirement product. As the name suggests, the annuity pays out a certain amount on prescribed dates for a certain term. If you buy a 10 year term, the annuity will make payments of "x" amount each month for 10 years. If you die in the second year, the annuity will continue to pay to whatever other party you have designated.

Life Only Annuities are a bird of a different feather. These annuities are really designed for a person with no heirs. The positive side of these annuities is they will pay until you die. If you buy one when you are 50, it will continue to pay monthly whether you die at the age of 55 or 95. The downside is the payments stop immediately upon your passing, which can leave a spouse or heirs in a lurch.

The Joint Life Annuity is similar to the Life Only version, but it is really designed to cater to couples. The payments continue for so long as either of the spouses remains alive. Since this tends to extend the term of payments, the payouts tend to be smaller with these policies. Still, they are popular and very common with older couples.

Which annuity is best for your particular situation? The answer depends on your overall financial situation and retirement goals. Speaking with an independent financial advisor is usually the smartest move you can make in evaluating your options.

Barry Milton writes about retirement planning and other financial planning subjects for UFCAmerica.com.