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A retirement annuity can be in the form of a 401(k) with your employer or an Individual Retirement Account (IRA). Regardless of the method used for your to invest in, a retirement annuity is something everyone needs to have established. Too many people make the mistake of thinking retirement is too many years away to worry about, but the sooner you get into the habit of contributing money to your retirement annuity the more comfortable you will be financially as the time approaches.

With a retirement annuity, the funds aren’t allocated until you reach the age of 59 Ω. Some people choose to work a few years longer. Should you decide to withdraw from the account before you reach that age you will have to pay a penalty of 10% so try to avoid doing so.

With a retirement annuity, the amount of money you have contributed plus interest and returns on your investments are dispersed in scheduled intervals. You can select to get the funds allocated on a monthly, quarterly, or annual basis. There are some advantages to each one. With a monthly allocation you can budget for your monthly living expenses as well as have enough to enjoy some luxury activities.

A quarterly payment allows you to pay your bills monthly or even by the quarter as well. You have to be careful to spread the funds out enough to cover the entire quarter though, especially if the retirement annuity is your only source of income. With these options you only pay taxes on the amount of money you are allocated during the calendar year. This can substantially lower the amount of tax you pay.

Some people have big plans for the year during retirement and they want a lump sum payment for the entire year. Again, it is vital that you reserve enough money to cover your basic living expenses for the entire year. If you spend the entire yearly allotment in a few months you may run into complications for the remainder of the year.

A retirement annuity can make the difference between retiring when you are ready and enjoying the rest of your life or having to continue working to barely scrape by. With inflation the cost of living is only going to get more expensive. It is the responsibility of each person to do all they can to prepare for their retirement.