Wednesday, August 10, 2011

Annuities - Investing Money For and in Retirement

Investing money in annuities offers advantages over other popular investment options like bank CDs and traditional mutual funds. This is true whether you want to invest money for retirement or in retirement.

Ideal candidates for investing money in annuities would be people in their peak earnings years who want to invest money for retirement and get a tax break. Annuities are good investment options IF you plan to stay invested for at least 7 to 10 years; and you won't need this money until you are in retirement. Tax-deferred annuities have traditionally been offered in two basic forms, and are issued by life insurance companies.

Basic FIXED ANNUITIES are similar to bank CDs in that they pay investors an interest rate that is fixed for a period of time. For example, the issuer might guarantee an initial interest rate and then periodically adjust the rate over time based on the interest rate environment.

An advantage of investing money in fixed annuities is that they generally pay higher interest rates than you can get at the bank. The second advantage is tax deferral.

VARIABLE ANNUITIES in their simplest form resemble mutual fund families. They offer various investment options. Tax deferral is again an advantage here. For example, you can invest money in one of their stock funds and later switch to one of the other investment options without income tax consequences.

Tax deferral is the signature of annuities in general, and this makes them especially attractive to folks in a higher tax bracket. Here's an example of why people invest money in a tax-deferred retirement annuity (annuities).