What Are Annuities Used For


Annuities are a popular investment for anyone who is interested in creating income streams which can grow in a tax deferred account. Annuities provide a depth of investment and retirement income solutions for all investors. Purchasing an annuity can deliver important investment benefits to the investor, including predictable investment growth and deferred taxes. An annuity is a contract that is purchased between an investor and an insurance company.

Annuities can be used to defer tax obligations on the growth of the account overtime. In addition with annuities, the investor would also be able to determine his level of risk and his potential level of growth and risk. Annuities are also used for creating income streams benefits either immediately or at a later date.

Regardless of an investor would like an immediate income or deferred income stream, an annuity presents several immediate advantages. Various annuities exist to provide a mix of unique characteristics that may be appealing to different investors, including the ability to choose the level of risk, specific deferred tax benefits, and predictable income streams.

Annuities can provide the investor the option of placing money in a place where they guarantee receiving tax free growth every year or until the funds in the annuity account are withdrawn. In addition, annuities are flexible savings instruments as they can be purchased with either pre-tax or after-tax funds. Of course, the tax obligation would have to be paid at later date, but which may beneficially place the investor in a lower tax-bracket altogether. Careful retirement planning could allow the investor to reduce his or her tax burden and further grow money in a tax free account – all at his discretion.

There are several types of annuities to choose from that all have specific benefits for the investor. A “fixed” annuity, for example, can provide an investor the ability to deposit his money in an account that steadily grows at, say 3% a year. The growth may not be as dramatic as other funds, but this allows the investor to safely plan his or her income, despite what the market may be doing now or in the future.

In addition, variable annuities can provide investors with incredible flexibility to invest in any number of mutual funds within one annuity. The investor can give weight to each mutual fund or fixed fund in accordance with his or her own aversion to risk. So for example, if an investor would like to invest in higher risk international funds but maintain a balance in his annuity, he may also be able to invest in “fixed” funds in the same annuity. Variable annuities also provide and allow for a beneficiary to be named in the account. A beneficiary would be able to claim unpaid purchased on the account before the money is withdrawn, in case of the investor’s death. Index funds, on the other hand, allow the investor to tie his annuities growth to that of the market’s level of growth.