Although the majority of people are perfectly aware that they should be planning for their retirement, actually getting the process started is often easier said than done.

The process of setting up a financial plan encompassing the present and the distant future can feel overwhelming and daunting, especially for younger workers. However, the alternative of just leaving your future to chance could likely result in you spending your older years counting pennies for the bare necessities, or, even worse, without any money or assets to support yourself.

The bottom line is that you must establish a financial strategy if you want to ensure that you have a financially sound retirement. Think of your retirement plan like building house - you don't have to build it all in one day, but you do need to start with a strong foundation. Since an annuity provides a long-term, reliable source of income during retirement, it can be a good foundation to start building your retirement plan.

Annuities actually have several attractive features that make them an ideal starting point in your financial strategy. For example, the funds in your savings accounts can be depleted over time, but the funds from an annuity can't be depleted and will continue for the rest of your life. Such a reliable, consistent, and continual stream of revenue is a very attractive feature considering the life expectancy for males and females in American continues to rise steadily.

Another attractive feature is that annuities are flexible. You have the flexibility to fund the annuity through either a series of large or small contributions or one lump sum of money. Unlike an IRA or 401(k), annuities don't have limits on how much you can contribute. There's also flexibility in the annuity's payout, including:

  • Receiving set payments for the period certain, which is a specified number of years within the annuity contract. Should you die before the period certain ends, the beneficiary you've named will continue receiving your payments for the remainder of the period certain.

  • Receiving payments for the entirety of your lifetime.

  • Receiving a lump sum payment of all the money that accumulated.

  • Receiving payments for either the period certain or your lifetime, which combines the features of the lifetime annuity and the period certain annuity and allows you to receive payments for the longer of the two.

  • Receiving payments for the combined lifetimes of you and your spouse through a joint and survivor annuity.
Annuities also have some tax benefits. For example, the interest that accrues from the annuity is tax deferred until you start to make withdrawals from it. Such a feature makes an annuity especially attractive if you're in a higher income bracket now, but anticipate being in a lower one during retirement.

Another tax benefit comes from estate taxes. Since the death benefit from most annuities is paid in the form of a life insurance claim, your assets can be protected from estate taxes. In other words, your heirs could avoid paying costly estate or income taxes on the benefit.

* Annuity withdrawals are generally taxed as ordinary income and may be subject to surrender charges, in addition to a 10% federal income tax penalty if made prior to age 59 1/2. The guarantees and payments of income are contingent on the claims paying ability of the issuing insurance carrier.
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