What are the major advantages of annuities?
Annuities offer tax benefits, risk aversion, security and flexibility. They help in building substantial funds for retirement, providing an income that won’t be outlived, which is a major concern for many retirees. Since the general assets of the insurance company back annuities, they solve long-term financial needs in a better and more protected way than most other alternatives. An annuity can also reduce taxes and allow the investor to decide when to pay them, since the earnings accumulate income tax free and are deferred until the dollars are withdrawn. Additionally, naming a beneficiary for an annuity can help in avoiding protracted probate proceedings.
What are some of the major types of annuities?
A fixed deferred annuity provides the security of a guaranteed interest rate, making it a good fit for those who are saving for retirement and seeking tax deferral advantages. Variable annuities are flexible enough to reflect the gains of potential market growth, making them more of a risk-reward proposition. An income annuity alleviates concerns about outliving your income by supplying a guaranteed retirement income for investors who are already retired or nearing retirement.
Which annuities are right for me?
It will be up to each person to decide which type of annuity best serves his or her lifestyle and budget. Different investors have different portfolios and different needs, so certain annuities may be ideal for some, but not for others. As a general rule, however, if you have short-term liquidity needs or a necessity for current income, not all annuities are going to be the right fit for you.