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Why Invest in Annuities

Annuities have garnered the attention and affection of savvy investors over the years as a proven, safe, and worthy long term investment. Annuities can add depth to a solid portfolio and add an immediate or deferred income stream. A widely used option among investment prone pre-retirees and those already in retirement, annuities are contracts that promises to make periodic payments to the investor for an established amount of time and at a particular rate of interest. This level of predictability helps calm fears of market volatility.

Annuities make for worthwhile investments because they offer tax-deferred growth. So, this means, that whether your annuity grows 3% or 10% every year, for 20 years, you will not be taxed on that growth until you make your first withdrawal. This ability to grow every year without the taxman being involved every year can increase your investment as the years go by. In addition, when you finally do pay taxes, you may be in a lower tax bracket. Therefore, one the whole, annuities make it simple to create retirement income streams as they provide for accumulated assets to grow without getting taxed on that growth prior to making a withdrawal.

Of course, the amount of those return payments ultimately depend on the amount of the initial investments, the type of annuity chosen, the length of time that has passed, and the performance of the market. With annuities, the investor can get his funds back when he retires in a percentage that is entirely based on his need for cash from year to year. Further, he can either elect to be paid out all at once, in one-lump sum or in installments for period of time, say 10 to 30 years. Case in point, the FDIC can, upon turning 60 years old, can decide that she will withdrawal 6% a year for the next 20 years from her account. Based on that percentage and based on the amount of time chosen, the investor will receive a period check with that reflects 6% until the amount of the annuity is exhausted.

Thus, creating retirement income through various annuity accounts can create various streams of periodic paychecks that the investor knows will be there for a particular time period. In addition, unlike some other saving vehicles, some annuities allow for added security when the investor dies, as the remaining payments can be passed to a beneficiary. Fixed annuities are backed by gathering the money from many investors into a pool and delivering payouts from that pool. Because of this, they offer a fairly safe return on their initial investment and are particularly beneficial to those retired or near-retirement, as they have less room for wide market fluctuations.

A retirement portfolio with several annuities can all have various distribution or pay days that can supplement other investments the investor has made. With the predictable fluctuations in the market, fixed annuities generate the attention of frugal investors who would like to foresee a steady and dependable rate of return. Yet, the investor less averse to risk can also increase his growth by investing in variable or indexed annuities which are often tied to the performance of either a group of stocks or the overall market. Either way, annuities offer an investor some very good benefits and the ability to diversify his or her investment options that also provide deferred tax benefits.