Why Consider Annuities For Retirement Savings?

Are You Trying To Make Retirement Plans?

If you plan to retire next month, or if you have no plans to retire for many years, you should still be making retirement plans. It is never too soon to make these plans. But even if you think your retirement is a short way off, there is not better time to start than now.

There are types of annuities that attract people with long and short term plans to retire. The best type of account will depend upon your own particular situation. I cannot predict the future economic situation of the world, the country, or particularly, any of my readers. I just want to explain a little bit about fixed annuities so you can decide if you would like to do further research on your own.

Single Premium Immediate Annuities For Retirement Income Now

People who plan to retire right away may look at single premium immediate annuities (SPIA) as a way to use their money to give them more retirement income. Of course, your own income will depend upon a number of things. The amount of money you have to put into the account, the returns of your particular annuity, and how long you expect to get your income will all affect how much money you can withdraw each month.

People use an SPIA as a way to turn a large sum of cash into income. This only works out well if you have that large sum of cash to use, and if you do not mind giving up control of that money for several years. If you change your mind, and take your principal out early, you may be subject to high penalties.

If you do have this large sum of money to set aside, you may be happy with the fairly low risk and decent returns of many fixed annuity plans on the market.

Deferred Annuities For Future Retirement Income

If you do not have a large sum of money today, but want to build an account for the future, you may want to consider a deferred annuity. You can fund this account with one cash payment today. Some accounts allow you to make future contributions over the course of years. So you might seed the account with a few thousand dollars now. Every year, you may add to the account. This will allow you to build up a fund if you have a few years before retirement.

This can be one way to increase your future retirement income. However, be sure that you will not need your money in the near future. Most of these plans have high surrender penalties if you take out your cash before the surrender date.

Are Fixed Annuities Right For Your Own Retirement Plans?

Everybody has different needs.

Many folks prefer bank savings accounts and certificates of deposits. These are considered very safe savings products. Most of them are fairly short term too. You will not have to lock your money up for years. But these days, most have very low returns.

Other folks like to invest in market products like stocks and bonds. These may have higher returns, when times are good, but can also be very risky when times are bad.

The main attraction of fixed annuities is that they are considered safe products, but can return more than bank savings accounts. This article cannot illustrate any particular product, or predict the future. I am just trying to provide you with a simple guide to one retirement savings alternative.

Consider some annuity advantages when you are trying to figure out the best way to plan for your retirement income. To dig a bit deeper, learn about single premium immediate annuity advantages too.

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Why You Should Consider Owning an Annuity As Part of Your Investment Strategy

Most investors are familiar with the idea of utilizing mutual funds to form the basis of their investment strategy. Ask them whether they would consider buying annuities to diversify this strategy and they may well stare blankly at you. This is hardly surprising as a sizable proportion of investment advisors are equally wary of incorporating annuities into their clients' portfolios.

This article will attempt to de-mystify this much under-used form of financial investment by explaining what an annuity actually is and assessing what circumstances, if any, favor their use.

At the most basic level there are two types of annuity, namely immediate and deferred. An immediate annuity involves paying a lump sum to an insurance company that guarantees to repay a fixed amount to the investor every year for an agreed term. The period of time involved will be either your lifetime or for a fixed number of years. Generally your money is not invested in the stock market but earns a small return over the period of annuitization.

If you choose the lifetime option your payments will be based on life expectancy derived from IRS mortality tables. The advantage of this option is that you will receive the guaranteed annual payout even if you exceed the assumed life expectancy period. The downside of this option occurs when you die before the assumed life expectancy period expires, in which case the insurance company keeps the balance of your investment.

A deferred annuity is designed to provide you with an income at some agreed point in the future, usually upon retirement. A major advantage of this option is that you are not liable for tax on the annuity each year allowing you to benefit from a triple compounding effect. Your investment continues to grow untaxed with gains taxed only when you withdraw money from the annuity. Such earnings are treated as ordinary income rather than capital gains.

The three most popular types of deferred annuity are the variable annuity, fixed annuity and index annuity. A variable annuity is essentially a tax-deferred mutual fund with death guarantees built in. This type of annuity is composed of several mutual funds, or sub-accounts, so the value of the variable annuity is dependent on how well these funds perform. The advantage of this type of investment is that the investor's beneficiary will receive a guaranteed dollar amount on his or her death.

Fixed annuities provide the investor with a guaranteed rate over the term of the contract. The rate payable is agreed at the time of purchase and does not fluctuate in response to market conditions. The fixed annuity shares the deferred tax advantages of the variable annuity but the benefit payable on death is limited to the contract value at the time of death. All in all the fixed annuity represents a more conservative form of investment and will therefore appeal to a sizable segment of the market.

Index annuities are a mixture of the variable and fixed versions. Generally, your investment will be tied to the performance of a named index with some downside protection built in to ensure the value of your investment does not fall in any given year. Unfortunately there will also be a cap on how much your investment can earn in a given year. The index annuity may appeal to investors who welcome the opportunity to beat inflation by linking to market growth but also want to enjoy the comfort zone provided by this particular investment vehicle.

Clearly, putting your money into annuities or any other form of investment warrants a great deal of careful consideration. In some circumstances annuities may represent the best option available, but this will not always be the case. Always seek advice and guidance from a qualified expert in this field before investing your money, but don't be afraid to ask relevant questions about the full range of investment options available.

Richard Mitchell owns and operates [http://www.insurancepolicyreport.com/]

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