An annuity is a financial instrument - a contract between an individual and an insurance company - whereby the individual pays a lump sum or series of premiums and, in return, receives a steady stream of income over a specified period or for life.
This predictable pay-out option is especially valuable for retirement planning, as it transforms savings into reliable income, often extending coverage beyond one’s lifespan.
Annuities hold strategic value for businesses and employees alike, particularly in a global context:
Financial stability: provides employees - regardless of location - with predictable, long-term income.
Risk management: shifts longevity risk (the chance of outliving retirement savings) from the individual to the insurer.
Insurance-like reliability: unlike market-linked investments, annuities (especially fixed types) guarantee income even in volatile conditions.
Retirement planning tool: integral to income strategies where pensions are unavailable or in decline.
Here's a simplified breakdown:
Premium payment: the annuity owner pays a lump sum or ongoing premiums to an insurer.
Accumulation/deferment: premiums may grow tax-deferred over time before income payments begin.
Pay out phase: the insurer distributes regular payments – either immediately (immediate annuity) or starting at a future date (deferred annuity).
Payment types:
Fixed annuity: offers guaranteed pay outs with low risk.
Variable or indexed annuity: payment fluctuates with market performance or indexes, potentially offering higher returns with more risk.
For businesses with international teams, annuities offer:
Cross-border retirement support: helps structure employee benefits that transcend regional pension discrepancies.
Financial security: ensures employees have consistent income, regardless of location or economic shifts.
Benefits diversification: annuities can complement Mauve Group’s EOR packages and global payroll services, offering employees holistic compensation and stability.
Indirect compensation: non-cash benefits like bonuses, perks, and annuities that enhance employee satisfaction.
Employer of Record (EOR): a provider managing employment, payroll, and benefits for international employees.
Global payroll services: outsourced payroll management across countries for compliance and efficiency.
Pension & retirement planning: strategies including annuities to secure long-term employee income.
Fixed vs. variable annuities: contrasting structures for guaranteed vs. market-linked retirement income.
Deferred vs. immediate annuity: timing-based distinctions that determine when pay outs begin.