Annuities – Choosing The Right Path For Your Retirement


With the frightening volatility in the markets the last several years, many investors planning for their retirement have become spooked. They have watched in horror as their hard earned retirement investments have plummeted as much as fifty percent in a single year. A way to save and plan for retirement that contains guarantees against principal loss is called an annuity. They are several types of these annuities that help individuals prepare for the best path towards their particular retirement.

About Annuities

Annuities allow for an individual to save money in a tax deferred vehicle. They also provide the unique characteristic of providing a retiree guaranteed monthly payments for their entire life. The investments in them grow in a tax deferred manner so long as the owner does not take out money in advance of turning fifty-nine and a half. They have the added advantage of not being limited in the dollar amount that the person can contribute at a time or in a given year.

Annuities can be invested in via two different means. A person can place a single amount of money at one time into them. This is known as a single premium. Otherwise, regular payments may be deposited over a certain amount of time. This is called a flexible premium.

Single Premium Immediate Annuities

In this type of annuity, the contributor puts a one time lump sum amount of money into the annuity. He or she then starts receiving the guaranteed scheduled payments right away. Individuals who are interested in this kind of annuity are usually those who are preparing for imminent retirement, for those who require the ability to get to their funds immediately, or for individuals who may already be retired.

Single Premium Deferred Annuities

With this form of annuity, an investor places a one time lump sum of money into the annuity with the intention of it being a long time frame investment. The withdrawals and accompanying taxes are then deferred to a later point in time. People who find this to be a sensible choice are those who have sold a house and made significant profits, those who have received an inheritance of cash, or others who have obtained a large one time settlement for whatever reason, but who are not planning to retire in the near future. These annuities will grow the value of the principle until the time for withdrawals arrives.

Flexible Premium Deferred Annuities

These types of annuities are ideal for those who are early on in their working career, or who have many years to go until retirement, but may not have a large amount of money saved up yet. In this type of annuity, regular deposits, known as premiums, are put into the annuity as a longer time frame investment. Any withdrawals would be put off until a later time near or at retirement. Again, all taxes on deposits would be deferred until funds are actually dispersed.

Variable Annuity

Annuities whose principles are not guaranteed regardless of market conditions are known as variable annuities. These longer term annuities are actually customized by the owner. The investor is able to pick out different funds from a large variety of investment choices. In such a way, the investor trades the guarantee of protected principal for the possibility of a greater growth in value over time. This all depends on how the underlying investments that are chosen perform. An advantage to these kinds of annuities lies in the fact that they permit transfers from one investment choice to another completely tax free.

It is very important for any person considering a variable annuity to be cognizant of the fact that the investments within this type of annuity will go up and down with the market. This means that there is a significant risk of them losing value. For this kind of annuity to be appropriate for an investor, his or her time frame, tolerance for risk, and investment objectives should all be carefully evaluated and contemplated.

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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