Obtaining an annuity provides a vast array of benefits. Annuity owners are recognized as careful, conservative, and strategic investors which tend to be why they end up making an ample amount of profits and generate higher retirement incomes. Annuities offer more benefits than any other income providing asset. There are those who criticize annuities often because they are not completely aware of the benefits a person receives from investing in an annuity.
Let’s take a moment to look at the benefits of an annuity. When surveyed over 85% of annuity owners purchased it for the tax-benefits. When you invest in a CD you can pay up to half of your income in taxes depending on your tax bracket. On the other hand, an annuity is tax deferred. For your CD to match an annuity that pays a three percent return on investment your CD would have to pay a 6 percent return to match the tax-deferral of an annuity. That is assuming you are in a fifty percent tax bracket.
People even consider investing in annuities because an annuity offers a high level security on the deposit. The deposit is insured by the life insurance organization as this organization has to maintain a certain ratio of liabilities and assets in order to comply with state guidelines. Unlike CDs, annuities are not backed by federal government, such as FDIC.While selecting an annuity provider; you have to make sure that the company is rated very well by the credit rating agencies. The life insurance company is supervised by state government and is often required to deposit capital in a state guarantee fund which provides security to insurance companies in the case of any insurance company falling below the maintain levels of capital surplus.
This next feature single handedly separates annuities from any other income producing asset. Annuities offer lifetime income payment options and no other investment vehicle offers a more comprehensive income solution. The income payments delivered to annuitants are calculated on the basis of life expectancy, amount of deposited by the annuitant and the interest rates. The point to be noticed about this feature is if the annuitant outlives his expected age limit, the provider has to continue to make income payments for as long as he lives.As an added benefit option of an annuity, if the annuitant dies; the balance of the deposit is provided to the beneficiary or the successor of the annuitant and the income is then provided to them as well. You may even elect a payment option which adjusts for inflation.
The basic advantages of annuities involve lifelong income payments, guaranteed returns, security of deposits and tax benefits. Another advantage is that annuity offers fixed rate of return to the annuity owners on their investment. For example: you purchase an annuity for ten years and the insurance company is obligated contractually to pay you fixed rate of return for those ten years. The fixed rates offered by annuities are often higher than the returns offered by CDs. The fixed rate of return offered by annuity providers is usually higher because the provider is able to invest your money for a longer period of time. Because banks invest in shorter periods they offer lower fixed returns.
You might have heard that when you invest in annuity your money remains locked up for a long period of time and you cannot withdraw money in emergency situations. In some cases that may be true, but, most annuities allow you to take out 10% of the accumulated assets in the form of a free withdrawal which can be done without the payment of any extra penalties or charges. In most cases after a period of five to ten years the withdrawal charges go away. Any withdrawals taken are subject to ordinary income taxes and you could possibly have to pay IRS withdrawal penalties if you withdraw money from annuity before 59 1/2.
There is another option to withdrawing the accumulated value. At the end of the term, you could do a transfer to another annuity contract via a 1035 exchange which allows for a tax free transfer from one annuity to another. This may be a good option if the interest rate of the annuity you own is decreasing or if you were able to find a more suitable annuity product for future needs.
The proceeds from an annuity are provided to the annuitant’s successors and beneficiaries if the annuitant dies. This beneficiary designation is contractual which allows heirs and successors to avoid time in courts hassling with probate laws. It also saves the beneficiaries money on legal fees.
While you may have been deterred from annuities in the past, mostly by people who just did not understand the features and benefits, there is no question that an annuity is a versatile and feature rich part of a balanced portfolio. Which could explain why annuity owners are some of the wealthiest individuals in the united states.
Image from page 118 of “Tales from Maria Edgeworth;” (1903)
Image by Internet Archive Book Images
Title: Tales from Maria Edgeworth;
Year: 1903 (1900s)
Authors: Edgeworth, Maria, 1767-1849 Dobson, Austin, 1840-1921 Thomson, Hugh, 1860-1920, ill
Publisher: [London] W. Gardner, Darton & co.
Contributing Library: Information and Library Science Library, University of North Carolina at Chapel Hill
Digitizing Sponsor: University of North Carolina at Chapel Hill
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Text Appearing Before Image:
I thought he would havedropped ; and he was so modest, maam, when Mr. Spencerspoke to him, and told him he had done his duty. And did my brother tell him what reward I intend forhim ? No, maam, and Im sure Franklin thinks no more ofreward than I do. I intend, continued Mrs. Churchill, to sell some ofmy old useless plate, and to lay it out in an annuity forFranklins life. La, maam ! exclaimed Mrs. Pomfret, with unfeignedjoy, I am sure you are very good ; and I am very glad ofit. And, continued Mrs. Churchill, here are some ticketsfor the play, which I shall beg ycu, Pomfret, to give him,and to take him with you. I am very much obliged to you, indeed, maam ; andIll go with him with all my heart. And, maam, said Mrs.Pomfret, the night after the fire I left him my great Bibleand my watch in my will ; for I never was more mistakenat the first in any boy in my born days ; but he has wonme by his own deserts, and I shall, from this time forth, loveall the Villaintropic folks for his sake. 86
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Simpfe Smanf. CHAPTER I Waked, as her custom was, before the day,To do the observance due to sprightly May. Dryden. a retired hamlet on the borders oi Wales,between Oswestry and Shrewsbury, it isstill the custom to celebrate the first ofMay. The children of the village, wholook forward to this rural festival with joy-ful eagerness, usually meet on the last dayof April to make up their nosegays for themorning, and to choose their queen. Theircustomary place of meeting is at a haw-thorn, which stands in a little green nook,open on one side to a shady lane, andseparated on the other side by a thicksweet-brier and hawthorn hedge from the garden of an attorney. This attorney began the world with—nothing ; but he contrived to scrape together a good deal of money, 87
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