Annuities: A Great Retirement Saving Strategy

By Compuquotes Team on March 27th, 2008

Insurance and investment experts say that the primary reason why people buy annuities is to have a source of income upon retirement. That income is paid out to the annuity holder at regular periods of time in the future after premiums for the annuity have been paid.

You ask yourself the question now: why buy an annuity when I can just save over the years in amounts that will ultimately result to an aggregate that will allow me to live comfortably during my retirement? Contrary to what most people fear about annuities, that a lump sum payment is required, you can opt to make periodic payments. And that makes the annuity practically a savings scheme, too, but only this time, the returns will be greater than an ordinary savings deposit made with a bank.

However, much as you would like to think of annuity as a savings program as you try to accumulate wealth over time, that is where the similarity is supposed to end. Don't look at annuity as a savings account with a short-term perspective, meaning you save for a year then withdraw it the next to answer an emergency or make a one-time purchase. Annuities are meant to be long-term and the perspective is to be able to fund your retirement income.

What makes it a great �saving' strategy is you are able to generate or accumulate wealth over time yet get better optimum returns for your investment more than what usual market rates are paid even for medium or long-term certificates of time deposits. You also enjoy the flexibility of a savings account because if you want to withdraw from your funds even before the set time of payout upon retirement, there are annuity contracts that will allow the buyer/holder to borrow loans from the annuity fund.

So just like a savings account where you can withdraw funds when you badly need them, annuities do that and more. At maturity, annuities may allow life income either for as long as you live or income for a specific period of time only (notwithstanding if you die or live to complete the period).

Also like a savings account, with the option to pay annuity premiums over time in installments, you get to achieve your objective of financial protection and security with added benefits. Unlike savings but more like insurance policies, you can appoint a beneficiary to receive your annuity payments should you die. Your beneficiary can receive the funds depending on how you want them paid, whether one time in lump sum or over a period of time in a series of payouts.

To sweeten the deal more, your great saving strategy of an annuity guarantees better returns for your money (a tax deferment scheme maximizes earnings as principal is not eroded due to tax) and offers further flexibility should you opt for other annuity programs later upon anniversary or maturity.

Like saving for your rainy days, in an annuity plan you need only determine how much money or regular income you wish to receive from your fund, when you want to receive it, and for how long a period you need it. Thereupon, with the annuity terms and conditions whipped up and the contract signed, it will be as easy as making regular withdrawals on your savings deposit account.

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