A financial Planner will often use various financial tools like annuities to help their clients.
But sometimes, people don’t know the difference between different annuity types. We want to provide a quick guide to help you understand the differences between these two annuity types, ordinary annuity vs annuity due.
Knowing the two terms, how they differ, and when to use one or the other can help you make informed decisions about your investments. Continue reading to learn more about the two, their differences, and when you should use one or the other.
Difference Between Ordinary Annuity vs Annuity Due
An annuity is an insurance product that can be used as an income stream in retirement. There are two types of annuities: ordinary annuities and annuities due.
The main difference between the two is that with an annuity due, you make your payments at the beginning of each period. It means that with an annuity due, you start receiving payments immediately.
In contrast with an ordinary annuity, you make your payments at the end of each period. It means you have to wait until the end of the first period to start accepting payments.
How an Ordinary Annuity Works
An annuity is an insurance contract that provides guaranteed payments to the policyholder for a specified period.
An ordinary annuity pays out benefits at the end of each payment period, if you have a monthly annuity, you will receive your benefit payment at the end of each month. And you would not have access to the money until the end of the term.
How an Annuity Due Works
How an “annuity due” works are pretty simple. The difference is that with an annuity due, you make your first payment at the beginning of the term. You must pay a little more each month to cover the additional period. However, it also means that you start receiving payments right away.
For example, an annuity due would be a good option if you are retiring and want to start receiving income immediately. Or, if you have a large sum of money you want to invest for an extended period, an annuity can offer some tax advantages.
Which One Is Right for You?
So, which one is right for you? It depends on your needs and your financial situation. With an annuity due, you get your money back as soon as you make a payment.
It can be a good option if you need the money sooner rather than later. But if you can wait to get your money back, then an ordinary annuity may be better. If you want to learn more about annuity and lump sum, you may take a look at Bogart Wealth.
It’s Your Time to Decide.
Now that you know the difference between ordinary annuity vs annuity due, it’s up to you to decide on your needs. Both annuities have pros and cons, so it’s essential to understand the difference before making a purchase.
Are you looking for more financial help as you plan your retirement? Check out our other blog posts for more articles about personal finance.