Annuities

Why choose an Annuity?

There are a number of reasons to consider an annuity as a retirement investment tool. Among the reasons to consider an annuity in your retirement investment portfolio are:

  • You can actually pay fewer income taxes by placing your warehoused money in an annuity. With an annuity you only pay taxes when you touch the funds. In other words, you are in complete control of your tax liability.
  • As a result of tax deferral, you earn interest from three separate sources. You earn compound interest on your invested funds, on your accumulated interest and on the tax liability of the money you would have sent to the government.
  • Like defined benefit retirement plans from an employer, annuities additionally allow you to provide for a known, constant income stream for a period of time or until death.
  • If your annuity has a specified beneficiary, the funds from your annuity avoid probate and are paid directly to the beneficiary without any delay or expense.
  • Properly structured, a transfer of property using your private annuity will avoid the imposition of gift taxes.
  • Investment in a private annuity can reduce your estate taxes by effectively removing assets from the estate.
  • You might find annuities to be a good tool when other retirement investment options, like IRAs and employer-sponsored plans like 401(k)s are not available or have been fully utilized; you may contribute as much as you want during the accumulation phase.

 

While doing your retirement planning you might have realized that there is some danger of outliving your retirement savings. Annuities can enhance your retirement security as they give you that much-needed boost after your retirement because you receive a specific amount every year, every half-year or every month, either for life or for a fixed period of time.

How do annuities work?

The details on how annuities work vary in accordance to the specific types available in the market. To give a general idea, an annuity is a contract between the annuity owner and an insurance company. An annuity owner makes an investment either in a single lump sum or through installments paid over a certain number of years. In return, the insurance company presents disbursements within the stipulated annuity period.

 

There are some instances where annuities can be paid out lifetime. This means that in some particular provisions of the policy, benefactors or their beneficiaries can enjoy annuity payments for the rest of their lives.

Typically, annuities include a sales charge, which is a commission to the seller. One should carefully review the commissions charged while purchasing annuities.