Benefits of Owning Annuities

Annuities provide a wide array of investment and retirement planning solutions for all investors, both big and small. Owning annuities, investors can deliver key investment benefits, including the opportunity for predictable investment growth and deferring taxes. An annuity is a contract that is purchased between an investor and an insurance company. If an investor would like an immediate income or deferred income stream, an annuity presents 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.

Recognized as “tax deferred” saving instruments, annuities can provide the investor the option of depositing money or purchasing the account and receiving tax free growth every year until the funds in the annuity account are withdrawn. This allows the individual to safely put away his money in a growing account until he or she is ready to make that withdrawal at a future date – all without receiving a 1099 form for the year.
In addition, annuities are flexible for investors, as they can be purchased with either money (after-tax dollars or not). Either way, the tax obligation would not have to be paid until a later date which might place the investor in a different tax-bracket altogether. Thus, careful planning would allow the investor to reduce his or her tax burden and further grow money in a tax free account – all at his discretion, and would serve as tremendous benefit.

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. As other option, variable annuities provide the investor with incredible flexibility to invest in any number of mutual funds within one annuity. The investor can give a particular 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. In case of the investor’s death, a beneficiary would be able to claim unpaid purchased on the account before the money is withdrawn. Index funds, on the other hand, allow the investor to tie his annuities growth to that of the market’s level of growth.

The primary benefit if annuities can be a deferred tax benefit that is only taxed on the growth of the account. This provides the investor with an excellent opportunity to invest his or her funds without the burden of taxation every year. In addition, the investor would also be able to determine his level of risk and thus, potential growth that he chooses to establish for himself. A secondary benefit is that an annuity income can be claimed either immediately or at a later date, which is all dependent on the investor’s personal financial situation.