An annuity is a financial contract designed to provide a steady stream of income. For freelancers, it represents a potential strategy for long-term financial planning.
What is Annuity?
An annuity is a contract with an insurance company. You pay a lump sum or make regular contributions. In return, the company promises to make periodic payments to you, either immediately or starting at a future date.
Why is this important?
Freelancers lack employer-sponsored pensions. An annuity can act as a personal pension, creating predictable income in retirement. This stability is crucial when your working income is irregular and project-dependent.
How does it work?
You fund the annuity during your working years. Later, it pays out regularly, like a paycheck. Payouts can last for a set period or for your lifetime, helping to prevent you from outliving your savings.
Pros and cons
Key benefits include guaranteed lifetime income and tax-deferred growth. However, drawbacks exist like potential high fees, reduced liquidity as your money is locked in, and complexity in contract terms you must understand fully.
Conclusion
An annuity is a tool for creating financial predictability. It can be a valuable component of a freelancer's retirement plan. Always consult a qualified financial advisor to see if it fits your specific situation.
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