Annuities are generally mis-understood and therefore tend to be under utilized by many investors. In this article I will list and briefly discuss a few facts about them that every investor should know.
First of all annuities are investment contracts made between insurance companies and investors. They work very much like IRAs, in that the money grows tax deferred, and the annuity owner can"t take any distributions from the contracts until they"re atleast 59 1/2 years old.
They should be a vital part of every retirement plan or wealth transfer plan because they"re so good for people who don"t need the money being placed into these investment vehicles until retirement. This characteristic makes them uniquely suited for saving for retirement and providing a lifetime income in retirement. When you hold this type of contract with an insurance company you are in essence creating your own pension like payout during retirement.
With payment options that provide lifetime income, annuities are an excellent way to fund retirement. This long term income aspect makes it possible for you to plan for a long and enjoyable retirement.
A variable annuity is another type of retirement investment and will be especially attractive to someone currently making a substantial amount of money and is trying, perhaps late in the game, to save aggressively for retirement.
With annuities the investment earnings are tax deferred until they"re withdrawn. At that point they are treated as taxable income (regardless of whether they came from selling capital at a gain or from dividends).
It should be noted that investments in annuities are not a deposit, not insured by the FDIC or any federal government agency, not bank guaranteed, and may go down in value. Investment values will fluctuate so that the investor"s units, when redeemed, can be worth more or less than their original cost. Investments in variable annuities involve risk, including possible loss of the principal amount invested.
All and all annuities can be a terrific retirement vehicle.