Retirement and Annuities

 

In the past, most individuals did not focus on their retirement plans as many worked their entire career at one job and when they retired they were provided with a company sponsored pension. A pension, combined with social security payments were adequate to meet the average person's retirement needs. However, most companies do not offer pension plans any longer, and there is much concern that social security may not be around when you are ready to retire. Your ability to retire without going into debt will depend on the amount of personal savings that you are able to accumulate. There are many options available today for use in achieving retirement goals. One such investment vehicle is the annuity.

Annuities offer several advantages such as earnings from annuities grow tax free until withdrawn at retirement. In addition, there are no annual contribution limits which give investors the option of investing the maximum in their 401K and IRA plans and placing additional moneys into an annuity. Unlike mutual funds, annuities offer beneficiaries a minimum of the amount of money that was paid in. Mutual funds offer beneficiaries the amount of the fund at the time of death.

Many annuities come in fixed and variable versions where fixed annuities offer a fixed rate of return and variable annuities offer choices for investment. As usual, there is a higher potential for gains along with the higher risk. You can choose the payment option since annuities offer the individual the choice between a lump sum payment or a fixed payment for life.

There are also some significant disadvantages of annuities and the major disadvantages associated with annuities are the large fees. The fees will generally overshadow any savings that are gained through the tax deferred earnings. In addition, annuity gains are taxed at a significantly higher rate than mutual funds.

For the vast majority of people an annuity is not the best choice for a retirement investment vehicle. The cost of fees, combined with the high tax rate, overshadow the advantage of tax deferred savings. Additionally, there are other investments that are currently available which offer the same tax deferred benefit. Consider exploring other options before deciding to invest in an annuity plan.

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