What are annuities?
Annuities are to projected income as the calendar is to projected weather. This idea is both soothing and intimidating because we can actually control an annuity but the thought of making a mistake with the mismanagement of our hard earned funds is hardly enticing. On the upside, we may not have a crystal ball but we have as much technology to predict the financial environment as there is for weather forecasting. We don't have an option but to stay informed and in charge about the direction of our investment. This is what it takes to manage an annuity! That is, to plan ahead and forecast the annual income yielded by our annuity.
There are two types of annuities: those based on variable rates and those that are based on a fixed rate. You can buy an annuity that starts liquidating immediately, which you can only purchase in one initial lump sum, or you can buy one that is deferred to liquidate at a later date while value is accumulating. The premiums for deferred annuities can be made periodically and the amount can be either fixed or flexible, which adjusts for changes in rates.
While essentially all investments made towards retirement in a qualified plan are tax-deferred, an annuity has tax benefits even when its not set-up as a qualified plan for retirement purposes. Thus, the purpose of annuities is not exactly the tax benefits. Rather, annuities are designed to provide greater flexibility with accumulation and liquidation of retirement funds but that can be used solely as liquidation vehicles for other sources of retirement funds. In other words, its possible to accumulate retirement income in a riskier plan that offers higher growth potential as with a 401(k) plan and down the road buy an annuity that provides a comfortable level of guaranteed income.
My recommendation is start saving for retirement now. As a risk-averse financial conservative, I lean towards investments that can be guaranteed as with an annuity. Why not make it a qualified annuity and enjoy the additional tax benefits?
For more information please see the link below:
http://www.ledgers2balance.com/insurance-products