People invest in annuities for varied reasons. While some look to create a personal pension program, others want immediate income and still others want to benefit from the performance of a stock index. Annuities are essentially insurance contracts that also guarantee a predetermined rate of return. Annuities are of many different kinds and were even found in use in the Roman era. At that time citizens would make a single payment and receive an annual pension for the rest of their lives. Today too, the basic aim of annuities remains the same: to secure the investor’s retired years. The returns for the annuity are assured as long as the insurance company is solvent.

Like all other investment tools the purpose of an annuity is to create savings that grow at a good rate of interest. However what makes annuities unique is the tax deferred on it. Tax deferral means that the tax on the gains from the investment is deferred or postponed until one receives income from the annuity or makes a withdrawal. On the other hand most other investments such as CDs are taxed yearly. What does tax deferral mean to you as an investor? And how important is it? These are two questions mostly asked by people looking to invest in annuities. Here is some information to highlight how important tax deferral is in annuity investment.

Thus the gains from an annuity come not only from the rate of return but indirectly also from the tax deferred. Annuities can be used in versatile ways to ensure a steady source of income for the retired years or even to avoid tax today and for all the years when the money is invested.