Annuities and Your Goals

Article Written By: simon.cronje01

Saving for retirement is the most important reason for investing money. Whatever your reasons for investing, annuities provide many benefits. They offer tax-deferred savings throughout the accumulation (investing) phase. You only pay taxes on money you receive, not on the annuity balance. After you begin receiving payments, they are taxed at your normal rate.

Two Types of Annuities

Deferred annuities operate like a long-term retirement account. You can save and invest your money for several years, while looking forward to a steady flow of income later. If you choose to invest in a deferred annuity, you must remember that they are designed as a retirement vehicle. Withdrawing funds before age 59 ? can result in a 10% income tax penalty. Though long-term annuities offer tax deferment, any payments you receive are subject to normal income tax rates and company surcharges.

Immediate annuities offer access to income right away. You can transfer money from another account to invest in an immediate annuity. There is no waiting period for receiving payments.

As Baby boomers retire, Social Security will be stretched thin. It is inevitable that future retirees will face benefit cutbacks. In order to prepare for your future, it is vital that you take steps to build your own investment portfolio.

Your Investment Challenges

Perhaps you already have several investment accounts. Most people are familiar with company sponsored pension plans, 401(k), 403(b), Roth IRAs, and Keogh accounts. The tax-deferred benefits of these plans contribute to their popularity with investors; however, the IRS limits the amount of money you can invest. A non-qualified tax-deferred annuity offers the same tax benefits without the cap on contributions. In fact, there is no limit on contribution amounts for annuities.

Your Current Investments May Not Carry You Through Retirement

The Social Security Administration reported in October of the year 2000 that a retiree s average paycheck was $815 per month for a person age 65 or older. They went on to confirm that Social Security and pensions might not provide enough income during retirement. Because life expectancies are increasing, retirees need to provide 20 to 30 years of retirement income. Social Security and pensions provide less than half the income for retirees earning more than $31,000 per year. If you want to continue with your current quality of life, you must have an additional source of income.

Inflation Erodes Your Investment Value

Most people understand that inflation devalues your investment dollars. According to the Consumer Price Index, inflation averaging 4% per year will reduce the value of your money by half in twenty years.

Tax Deferment Lets You Keep More of Your Money

Investing your money in an annuity allows you to save without paying taxes until you begin withdrawing payments. Once you withdraw funds, you will only pay taxes on the money you take out. That money is taxed at your normal income tax rate, which is probably lower than the capital gains rate.

About the Author

Simon Cronje - For more information on annuity visit http://www.totalreturnannuities.com/.

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