Final answer:
The most suitable annuity for Bill, who has an irregular income and plans to retire at 67, is option D) Flexible premium, deferred annuity. This type of annuity supports variable contributions and defers income until retirement, providing both flexible contributions and tax-deferred growth.
Step-by-step explanation:
Bill, age 33, plans to retire at age 67 and seeks a suitable annuity option given his widely varying monthly income as a consultant. Considering his need for flexibility in contributions and the delay in benefit payments until retirement, the most suitable option for Bill is D) Flexible premium, deferred annuity. A flexible premium annuity allows for varying contributions to match his irregular income, while a deferred annuity means that annuity payments will begin at a later date, fitting Bill's plan to retire at 67.
Understanding how annuities work is essential. An annuity is essentially a financial product that allows an individual to pay premiums, which are then returned as income during retirement. The 'flexible premium' aspect of a deferred annuity allows the annuity holder to vary the amount and timing of their payments, which is beneficial for someone whose income fluctuates. The 'deferred' part implies that Bill will start receiving payments from this annuity once he reaches his retirement age, rather than immediately.
Benefits of A Flexible-Premium, Deferred Annuity
- It accommodates Bill's variable income.
- It defers income until his planned retirement age.
- It allows for tax-deferred growth of the investment.