Annuity: A Secure Investment for Retirement

Jane Robinson is a 45-year-old architect. A mother of two, she and her husband Mark, a 55- year-old economic professor, live a comfortable lifestyle. They always provide the best of food, clothing and education to their kids. Jane and Mark believe in fine living and dining.

However, Mark, believes that life is not only about spending. It is also necessary to save and invest regularly. And so, the Robinsons ensure that they invest at least a quarter of their annual income in various investment products.

Though the Robinsons have invested in a variety of financial instruments, one look at their investment portfolio and you will realize that they are heavily into annuities. Mark feels that since he will be retiring in a couple of years, investing in annuities makes sense.

Experts will agree with Mark, that annuities do make sense when one is nearing retirement. Annuity is an insurance policy, which seeks to provide the investor with a regular stream of income. It is essentially a contract between an individual and an insurance company wherein the individual is required to pay a premium or a series of premiums.

Many financial experts stress that annuity is one of the most secured investment product and as such should feature in your retirement plans.

Here are some reasons that explain why annuity can be a perfect investment for retirement:

Income for life: In case you opt for a life annuity, you will continue to receive an income till you survive. The insurance companies are under an obligation to pay the income even after the exhaustion of the premium paid by you. This is beneficial for retirees who do not receive regular salary checks after their retirement.
Eliminates the fear of outliving your savings: Improved health care facilities and advancement in medical science has meant people are living longer. However, many Americans fear that they might outlive their savings. Investing in annuity addresses this concern. While investing in an annuity, the annuitant has the option to receive the income for a lifetime or for a specific period.
Safeguards your savings: The last thing that a retiree want to see is losing his entire savings. The recent bankruptcy of high profile companies wiped out the savings of many small time investors. Since, a retiree does not receive a regular salary check, he can hardly afford risking his savings. Annuity provides a low-risk option to the investor. Insurance companies are strictly regulated by federal as well as state laws. Federal law requires the insurance companies to maintain a reserve that is equal to the withdrawal value (principal plus interest less early withdrawal fees, if any) of every annuitant’s policy. Similarly, the state law requires the maintenance of surplus capital as well as contributions to state guaranty funds to provide additional security. Thus, retirees can be assured of the fact that their hard-earned savings are in a safe hand.
Tax deferred: Annuities are granted a tax-favored treatment by the IRS. Thus, you do not are not liable to pay tax on the gains made by your annuity policy. This allows the investor to earn an interest on the amount that he would have otherwise paid as tax.
Lower taxes: Retirement automatically pushes a person into a lower tax bracket. In case of an annuity, since one starts receiving the payment only after retirement, he actually ends up paying lower taxes.

So, if you are looking for an investment option that offers assured returns, safeguards your capital and provides you with an income for a lifetime, then why not follow the footsteps of the Robinsons and invest in an annuity.

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