ANNUITIES: A GUARANTEED, SAFE, AND RELIABLE INVESTMENT OPTION

Financial markets have a tendency to capriciously fluctuate with little predictability. Meanwhile, due to the fact that annuity income is considered guaranteed, safe, and reliable, it can provide greater financial stability for one's retirement years.

For those unfamiliar with annuities, these are contracts between an insurance provider and yourself. You agree to fund the annuity. It can be funded with a lump sum of money that you might have or through a regular payment to the insurance company. Either way, the insurance company agrees to pay you a predetermined amount over an agreed upon time frame.

Most people find that being able to structure an income source that won't be outlived is one of the most appealing features of an annuity. Having more than just one payout option is another attractive feature. For example, you may opt to have the income guaranteed for your lifetime and the lifetime of your beneficiary or have the income guaranteed for just your own lifetime. However, do keep in mind that opting to continue the payout over the lifetime of a beneficiary after your death will result in a lower payment than if you opt to receive payments only throughout your own lifetime.

There is also the financial benefit of tax-deferred growth; the ability to contribute unlimited amounts of post-tax dollars; and the ability to continue your contributions indefinitely, even after retirement. You won't pay taxes on your annuity until you make a withdrawal. Once a withdrawal is made, a regular income tax will be due. However, if you decide to make an early withdrawal, that is take an annuity distribution before you've reached age 59 1/2, then you'll suffer the same 10% tax penalty you would from any other qualified retirement account.

An annuity also offers several benefits in the area of estate planning. If you decide to name a family member as your beneficiary, then they will usually directly receive the benefits and not have to wait while your estate goes through probate. In addition, if you name your spouse as your beneficiary, then he/she can maintain the annuity and the tax-deferred state if they so choose.

Even though an annuity is one of the few investments that can tout it offers a substantial amount of control over how much retirement income is generated and the benefit of tax-deferred growth, an annuity won't be the perfect option for everyone in every situation. Consulting with a professional financial advisor experienced in annuities can help you determine if an annuity is the best option for your needs.

* 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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