Why Should I Invest in a Life Annuity?

Jason is a 75-year-old retired schoolteacher. He used to lead a comfortable life while he was still earning. The strange thing is that he is still able to continue with his lifestyle even though it has been quite a few years since he retired. So, what is the reason behind this? If I were to tell you that Jason has not inherited any wealth from his ancestors nor has he won any lottery then you might find it a bit intriguing, isn’t’ it?

The secret behind Jason’s comfortable lifestyle is - Well-chartered retirement plan.

We are all aware that once we stop working, either out of choice or due to circumstances, there is no inflow of money. But at the same time, our expenses do not stop. Hence, it is imperative for each one of us to chart a retirement plan as well as make sound investments so that we do not face a financial crunch during the final stage of our life.

And when we talk of sound investment, how can the name of ‘annuity’ not figure in our list? Well, annuity is a financial contract, wherein the insurance company is obliged to make a series of payments to a person in lieu of premium or a series of premiums paid by him.

However, if you want to make sure that the insurance company continues making the payments throughout your lifetime, then you ought to go in for a life annuity. TIAA-CREF Life Insurance Company defines a life annuity as ‘In its simplest form, a life annuity pays income to an annuitant for as long as she survive.’

Thus, a life annuity guarantees to provide the investor with an income for the rest of his life.

But most of you would like to question, ‘Why Should I Invest in a Life Annuity?’

There are many reasons that warrant an investment in a life annuity:

Income for lifetime: We are aware that we will not be working during our entire lifespan. However, it is essential that the funds keep flowing in. Life annuity helps you to achieve this aim.
Higher earnings: Payments receivable from a life annuity consists of interest earnings, return of principal, and survivorship return. Hence, the rate of return is as higher compared to that of other forms of investment. If a person is interested in receiving the same amount of interest from a bond, then he will have to sell the bonds periodically. If one has to sell bonds, then one will exhaust one’s bond portfolio. However, with a life annuity policy in place, one can be assured of receiving an income for a lifetime.
No fear of outliving one’s earnings: Since a life annuity, guarantees payments throughout your life, you can do away with the fear of outliving your savings. In a world, where we are experiencing longer lifespan, it is necessary that our investment portfolio also boasts of instruments that guarantee lifetime payment.
Tax deferred: Life annuities are tax deferred. Hence, you are liable to pay taxes only once you start receiving the payments. This allows your investment to grow without facing any tax hindrance. It also allows you to save on taxes. Remember in case of annuity, usually you start receiving the payments after your retirement by which time you will have already entered a lower tax bracket.

So, if you want to ensure an income for lifetime, then why not buy a life annuity?

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