There are many ways to save for retirement or if necessary, a rainy day in the future. Annuities are one example of this. This should then bring you to the question- are annuities right for me? There is one thing that is very important to bear in mind. Purchasing annuities is not the way to go for everyone. You should not buy an annuity if you have not fully funded your 401k, your 403b or your IRA (or if you do not intend to fully fund it for the calendar year presently upon you). These plans are one of the first steps in planning for your financial future and need to be taken care of before you consider investments such as annuities.
Are annuities right for you? That is a question that can be answered with a resounding yes if you have a fully funded retirement plan or plan to fully fund it and have money left over to invest. Perhaps you already have a well rounded and diversified portfolio that includes bonds, mutual funds and a stock or two. Annuities can also be an excellent complement to your portfolio. Let us look closer at how that can be.
An annuity is comparable to a retirement plan in that both allow for tax-deferred compounding until money is withdrawn from the account. However in the case of an annuity you are not limited to the amount of money you can invest. This is a big plus of such.
Most annuities feature a type of death benefit provision of one sort or another. In this case the issuer of the annuity guarantees that upon the death of the purchaser the total premiums will be paid out to the beneficiary (or beneficiaries). Not all annuities handle this in the same manner. Some "step-up" on the anniversary of the date that the purchase of the annuity was made to the highest value of any anniversary that preceded it. Others guarantee a minimum of five to seven percent interest compounded on a yearly basis while still others combine the greater of the two features described here.
But there is more additional benefits to think about when asking the question- are annuities right for me? As long as you are not receiving annuity payments you do not have to report them to the IRS as there is no tax bill nor is there a 1099. As well your creditors cannot go after the money in an annuity if you get behind or default on any debts and an annuity will never go into probate in any one of the 50 states.
