How Annuities Can Help Plan Your Future

By Compuquotes Team on July 7th, 2008

Before you can decide or learn how annuities can help plan your future, you should have a clear and good understanding of what an annuity is. Annuities are actually one of the widely used forms of investment products today and are one of the most widely used in the United States. The main reason that annuities are so popular is that they can actually build more value over time and ensure a safe way to plan for the future.

Many annuities can provide potential growth that is tax deferred, much like certain types of IRAs. The earnings deposited into the annuities can accumulate over time and compound without being touched by federal, state, or local income taxes until investors begin making withdrawals, which is typically after retirement. However, just like with IRAs, if you make withdrawals before the age of 59 ��, those funds will be taxed as if they were income. You may also be charged a 10% federal penalty tax in addition to any surrender fees your insurance company may also charge.

That aside, annuities can help you plan for your future because they offer a choice when it comes to investment options, which is not the case with so many other investment products out there. Annuities can come as fixed accounts as well as variable accounts. The former can help protect principal from market risk while the latter can offer the potential for higher returns, but with slightly more risk. Because of this flexibility, annuities are seemingly the most ideal investment option for a wide range of people striving towards retirement.

Today, not only insurance companies, but banks as well sell annuities, although most are still sold through insurance companies. Once an annuity is purchased, you will be able to accumulate money within that annuity through contributions of your income as well as investment earnings. The way you accumulate the money is really up to you as you have the option to make a single payment or a series over a period of time and unlike IRAs, you can contribute any amount you wish, regardless of how much you make or your source of income. You also have the freedom to choose between different payout methods when you start making withdrawals from your annuities. You can choose a fixed amount for life for you and your spouse or a series of payments to your beneficiaries and heirs.

As long as you are able to forgo using the money you put into your annuities for several years, until maturity, they can be an ideal retirement vehicle for you. But because annuities offer such flexibility, they allow a financial freedom that is not afforded by many other types of investment vehicles intended for retirement. Before choosing any particular annuity company, you should always investigate that particular company's stability and financial strength before you invest with them. If the company you are considering has a poor rating, you may not want to place too much faith or money into any of its products, as it may not be able to perform when you need it most.

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